Mighty Burger has been named as a plaintiff in a $5 million lawsuit filed by a customer over the addictive nature of the company's french fries. Mighty Burger's attorneys have advised them that the likelihood of a future obligation from the suit is remote. As a result of the lawsuit, Mighty Burger should:
A)Disclose the lawsuit in the footnotes to the financial statements.
B)Recognize a $5 million liability on its balance sheet for the contingency.
C)Ignore the lawsuit in its financial statements.
D)Settle with the customer immediately for $5 million to avoid harmful publicity.

Question

Quizplus · Accepted Answer

Because the obligation is considered remote, it is neither recognized nor disclosed in Mighty Burger's financial statements.

Mighty Burger Has Been Named as a Plaintiff in a $5