ABC Advisors is being sued by a former customer. ABC’s lawyers say that it is possible, but not probable, that the company will lose the lawsuit and the trial should last approximately 18 more months. Should ABC lose, they will most likely have to pay approximately $750,000. How should this lawsuit be reported in the financial statements?
a. Current liability of $750,000 and Expense of $750,000.
b. Long-term liability of $750,000 and Expense of $750,000.
c. No disclosure is required.
d. No effect on the balance sheet or income statement, but described in the footnotes.
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