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Hello every, I need some help to work this out…here is the question:
Knife Co. is currently involved in two lawsuits. One is a wrongful termination suit initiated by a former employee. It is reasonably possible there will be an unfavorable outcome for Knife in this lawsuit. The knife is also suing a competitor for patent infringement. It is probable there will be a favorable outcome for Knife in this lawsuit. The knife can reasonably estimate the number of damages from both lawsuits.
How should Knife account for potential damages awarded from each lawsuit in its financial statements at the end of the current year?
Wrongful termination lawsuit Patent infringement lawsuit
A.
Accrue AccrueB.
Accrue Do not accrueC.
Do not accrue AccrueD.
Do not accrue Do not accrueso the answer is D which is not accrued. what confused me is that the question already said wrongful termination lawsuit reasonably possible and also it said the both of damage can be estimated, then why do we still choose “not accrue” for termination lawsuit? shouldn’t this contingency event belong to the “Probable and estimable” part?
really appreciate your help. If there is anything wrong, please let me know, thank you soooo much!
Regards,
Leo
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