Aviation Systems is involved in a $10 million lawsuit filed
against one of its suppliers, Electronic Innovators. The litigation is in final
appeal, and legal counsel advises that it is probable that Aviation Systems
will win the lawsuit and be awarded somewhere between $6 and $10 million.
Which of the following statement is true?
A gain and an asset must be recorded for $10 million.
A gain and an asset must be recorded for $6 million.
A gain must be recorded for $6 million and an asset must be
recorded for $10 million.
Gain contingencies are not recorded.
A gain must be recorded for $10 million and an asset must be
recorded for $6 million.
Aviation Systems has a contingent gain that is probable and
reasonably estimable, within a range between $6 and $10 million. Contingent
gains are not recorded until the gain is certain. Though firms do not record
contingent gains in the accounts, they sometimes disclose them in the notes to
the financial statements.
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