Jake Company is involved in a lawsuit. The liability which could arise as a result of this lawsuit should be recorded on the books if the probability of Jake owing money as a result of the lawsuit is which of the following?
A) Remote and the amount can be reasonably estimated.
B) Probable and the amount cannot be reasonably estimated.
C) Reasonably possible and the amount can be reasonably estimated.
D) Probable and the amount can be reasonably estimated.

Question

Quizplus · Accepted Answer

According to accounting principles, a liability should be recorded on the books if it is probable that a loss has occurred and the amount of the loss can be reasonably estimated. This is why option D is correct.

Jake Company Is Involved in a Lawsuit