Final answer:
A remote contingent liability from a lawsuit should be disclosed in the notes to the financial statements, not recognized as a liability on the balance sheet itself.
Step-by-step explanation:
When a company is involved in a lawsuit with a contingent liability that is considered remote, the correct accounting treatment according to Generally Accepted Accounting Principles (GAAP) is b. a disclosure in the notes only. This means that it should not be recognized as a current liability on the balance sheet. The rationale is that if the likelihood of the event occurring is low, it does not meet the criteria for being recognized as a liability. However, full disclosure in the notes is required to inform the financial statement users about the potential future obligations.
In this scenario, where the contingent liability is considered remote, the liability should not be included on the balance sheet as a current liability. It should be disclosed in the notes to the financial statements instead. A remote contingent liability is one where the chance of it actually materializing is very low, and therefore does not meet the criteria for recognition as a current liability or a long-term liability.