[manjit9978]

ABC Technologies has been names in a lawsuit relative to product defects that may have caussed injuries to one of its customers. The plaintiff has requested a settlement of $500,000. Butterfield's attorney has determined than an unfavorable settlement is probable but estimated that the liability ranges between $150,000 and $300,000. In connection with this liability, BUtterfield should:
A Record a liability for $500,000
B Record a liability for $300,000
C Record a liability for $150,000
D Record no liability but disclose pertinnet liability exposure in the notes to the financial statements.

[hamzashakaa]

The answer is 150,000

For example, an enterprise may be litigating a
Dispute with another party. In preparation for the trial,
It may determine that, based on recent developments
Involving one aspect of the litigation, it is probable
That it will have to pay $2 million to settle the litigation.
Another aspect of the litigation may, however,
Be open to considerable interpretation, and depending
On the interpretation by the court the enterprise
May have to pay an additional $8 million over and
Above the $2 million. In that case, paragraph 8 requires
Accrual of the $2 million if that is considered a
Reasonable estimate of the loss. Paragraph 10 requires
Disclosure of the additional exposure to loss if there is
A reasonable possibility that the additional amounts
Will be paid. Depending on the circumstances, paragraph
9 may require disclosure of the $2 million that
Was accrued.