Darwin Corporation's attorney has provided the following summaries of three lawsuits against Darwin: • Lawsuit A: The loss is probable and the loss can be reasonably estimated.
• Lawsuit B: The loss is reasonably possible and the loss cannot be reasonably estimated.
• Lawsuit C: The loss is reasonably possible and the loss can be reasonably estimated.
-
Which of the following statements is incorrect?
A)There is a 70% chance that lawsuit A will result in a future economic sacrifice for Darwin.
B)A disclosure note is required for lawsuit C.
C)A disclosure note is not required for lawsuit B.
D)Lawsuit A is reported on the balance sheet as a liability.

Question

Quizplus · Accepted Answer

For lawsuits where the loss is reasonably possible, whether or not the loss can be estimated, a disclosure note is required according to accounting principles. Thus, statement C is incorrect because it suggests a disclosure note is not required for lawsuit B, where the loss is reasonably possible but cannot be estimated.

Darwin Corporation's Attorney Has Provided the Following Summaries of Three