Question

Abbott Corp.'s attorney estimates that the company will ultimately have to pay between $350,000 and $500,000 relating to current litigation, and that the most likely amount of the loss will be equal to $400,000. Abbott Corporation should accrue a contingent liability and loss of_____________________.

Answer 1

$400,000

Step-by-step explanation:

In this case, Abbott Corp. has a wide range of possible losses, between $350,000 to $500,000. But since the most probable loss equals $400,000, then that amount should be recorded.

If no amount was more probable than others, then the company can decide to report the lowest estimate as long as all the other estimates have the same probability of happening. But in this specific case it doesn't apply.