medium · Financial Accounting accounting-cycle-financial-statements
A company is involved in a lawsuit at year-end. Legal counsel advises that an unfavorable outcome is 'reasonably possible' but not 'probable', with an estimated loss range of $1 million to $5 million.
How should this be reported under ASC 450?
- Recognize a $5 million liability to stay conservative given the range.
- Recognize a $3 million liability, using the midpoint of the estimated loss range.
- Footnote disclosure only; no liability is recognized on the balance sheet.
- Recognize a $1 million liability, reflecting the low end of the estimated loss range now.
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