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Intermediate Accounting: Reporting...

3rd Edition
James M. Wahlen + 2 others
ISBN: 9781337788281

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BuyFindarrow_forward

Intermediate Accounting: Reporting...

3rd Edition
James M. Wahlen + 2 others
ISBN: 9781337788281
Textbook Problem
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Pending Damage Suit Disclosure

On December 15, 2019, a truck driver for Cork Transfer Company negligently rounded a curve that was also a bridge covering several local merchant shops. The truck jumped the guardrail and fell 30 feet onto one of the shops, causing highly flammable chemicals in the truck to explode. Although by February 22, 2020 (the date on which Cork’s financial statements for 2019 are issued), no claims had been filed against Cork, the company’s legal counsel believes it is probable that some will be filed in the future. However, counsel does not believe it can reasonably estimate the amount of these potential claims.

Required:

Explain the accounting treatment, if any, Cork should give the contingent loss occurring from the wreck in the December 31, 2019, financial statements.

To determine

Explain the accounting treatment for the contingent loss that occurred from the wreck in the December 31, 2019 financial statement.

Explanation

The accident has occurred on December 15, 2019 which is before the end of the fiscal year of Company CT. The claim related to the loss has not yet filed. As there is no relevant information about the claims, it indicates whether there is a contingency exist or not. Instead, Company T must evaluate the probability whether the claims would result a loss for the company...

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