[anonymous20000]

Hello, I’m a bit confused about the following question from the AICPA sample exam for FAR. It is part of the sims.

On October 15 year 3, one of Rev’s facilities sustained significant water damage. At your request, we contacted the property insurance carrier to check the status of the $2500,000 claim that rev filed on November 15, year 3. On December 27 year 3, the property insurance carrier acknowledged that the losses appear to be covered by the insurance policy. However, the property insurance carrier stated that its adjuster is still reviewing the claim and does not expect to settle it until March, year 4. The property insurance carrier further indicated that any payment is subject to the $235,000 deductible included in the property insurance policy.

1) Is financial statement note disclosure required for year 3?
2) What is the asset (liability) balance as of December 31, year 3?

[anonymous20000]

AICPA answer:

1) Is financial statement note disclosure required for year 3? Yes
2) What is the asset (liability) balance as of December 31, year 3? $0

Why is there no liability, can someone please explain? Thank you!

[Anonymous]

There is no liability because if you sustained the damage, why would you be liable? Gain contingencies are not recorded but disclosed, which is essentially what this question is asking. Hopefully I am right:)

[Author]

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