Reeves Co. filed suit against Higgins, Inc., seeking damages for copyright violations. Higgins' legal counsel believes it is probable that Higgins will settle the lawsuit for an estimated amount in the range of $100,000 to $200,000, with all amounts in the range considered equally likely. How should Higgins report this litigation?
A) As a liability for $100,000 with disclosure of the range.
B) As a liability for $150,000 with disclosure of the range.
C) As a liability for $200,000 with disclosure of the range.
D) As a disclosure only. No liability is reported.
Answer: A
If management can estimate the amount of loss that will occur due to litigation against the company, and the likelihood of the loss is probable, a contingent liability should be
A) Disclosed, but not reported as a liability.
B) Disclosed and reported as a liability.
C) Neither disclosed nor reported as a liability.
D) Reported as a liability, but not disclosed.
Answer: B
If management can estimate the amount of loss that will occur due to litigation against the company, and the likelihood of the loss is reasonably possible, a contingent liability should be
A) Disclosed, but not reported as a liability.
B) Disclosed and reported as a liability.
C) Neither disclosed nor reported as a liability.
D) Reported as a liability, but not disclosed.
Answer: A
