The following items represent various types of liabilities.
1. A manufacturing company is sued for alleged product liability. The company's attorney does not feel that the suit will result in liability to the company, but a loss is possible. If adversely adjudicated, the liability would be material.
2. Omega has sold products to Bright Eye Jewelers, a retailer that sold the products to customers. The manufacturer's warranty offers replacement of the product if it is found to be defective within 90 days of the sale to the consumer. Historically, 0.06% of the products are returned for replacement.
3. A customer has filed a lawsuit for a minor amount against Bright Eye Jewelers. Bright Eye's attorneys have reviewed the case and have found that many similar cases have never been awarded to the plaintiff.
Identify if the above independent situations should be (a) recorded in the financial statements, (b) disclosed in a footnote in the financial statements, or (c) neither.

Question

The following items represent various types of liabilities.
1. A manufacturing company is sued for alleged product liability. The company's attorney does not feel that the suit will result in liability to the company, but a loss is possible. If adversely adjudicated, the liability would be material. 
2. Omega has sold products to Bright Eye Jewelers, a retailer that sold the products to customers. The manufacturer's warranty offers replacement of the product if it is found to be defective within 90 days of the sale to the consumer. Historically, 0.06% of the products are returned for replacement.
3. A customer has filed a lawsuit for a minor amount against Bright Eye Jewelers. Bright Eye's attorneys have reviewed the case and have found that many similar cases have never been awarded to the plaintiff. 
Identify if the above independent situations should be (a) recorded in the financial statements, (b) disclosed in a footnote in the financial statements, or (c) neither.

Quizplus · Accepted Answer

The Answer of The following items represent various types of liabilities.
1. A manufacturing company is sued for alleged product liability. The company's attorney does not feel that the suit will result in liability to the company, but a loss is possible. If adversely adjudicated, the liability would be material. 
2. Omega has sold products to Bright Eye Jewelers, a retailer that sold the products to customers. The manufacturer's warranty offers replacement of the product if it is found to be defective within 90 days of the sale to the consumer. Historically, 0.06% of the products are returned for replacement.
3. A customer has filed a lawsuit for a minor amount against Bright Eye Jewelers. Bright Eye's attorneys have reviewed the case and have found that many similar cases have never been awarded to the plaintiff. 
Identify if the above independent situations should be (a) recorded in the financial statements, (b) disclosed in a footnote in the financial statements, or (c) neither.

The Following Items Represent Various Types of Liabilities