Electronic Innovators is the defendant in a $10 million
lawsuit filed by one of its customers, Aviation Systems. The litigation is in
final appeal, and legal counsel advises that it is probable that Electronic
Innovators will lose the lawsuit. The estimated amount is somewhere between $6
and $10 million.
Which of the following statement(s) are true? (Select all
that apply.)
A loss and a liability must be recorded for $6 million.
A loss and a liability must be recorded for $10 million.
A disclosure note should be included for a range of $6 and
$10 million to the financial statements with an entry for the minimum amount.
A disclosure note should be included for a range of $6 and
$10 million to the financial statements with an entry for the maximum amount.
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Electronic Innovators has a contingent liability that is probable and can be reasonably estimated within a range between $6 and $10 million. Electronic Innovators should record a loss and a liability for the minimum amount ($6 million) and disclose the range between $6 and $10 million in the notes to the financial statements.
