Question

The Ace Company is affected by the following contingencies at the end of 2015: 1) Ace’s legal counsel has concluded that it is probable that the company will be required to pay damages of $400,000 in a lawsuit. 2) Expropriation of Ace’s foreign assets, valued at $3,000,000, appears reasonably possible. 3) Ace’s controller estimates that $30,000 of the company’s receivables are likely to be uncollectible, and will require Ace to honor the amounts. 4) It appears remotely possible that a major customer will be unable to repay a note to Ace for $100,000. What total amount should Ace accrue for loss contingencies in 2015? A. $430,000 B. $3,400,000 C. $3,430,000 D. $530,000

Answer 1

option (A) $430,000

Step-by-step explanation:

Given:

Probable required amount to pay damages in a lawsuit = $400,000

Expropriation of Ace’s foreign assets = $3,000,000

uncollectible company’s receivables = $30,000

Note to be not repaid by the major customer = $100,000

Now,

the total amount of loss will only include the uncollectible receivable and the damages paid

therefore,

The total amount Ace accrue for loss contingencies

= $400,000 + $30,000

= $430,000

Hence,

The correct answer is option (A) $430,000