Question

Beginning on January 5, 2019, several law suits were filed against Cody Company. The company’s legal council’s opinion is that the contingency is probable and that they estimate that the amount of the loss will be $300,000.The proper accounting treatment for this contingency is to: Group of answer choices the amount is neither accrued nor disclosed. $300,000 amount should be accrued as a liability. only disclose the amount of $300,000 in the notes to the financial statements. not enough information is given to determine the accounting treatment.

Answer 1

$300,000 amount should be accrued as a liability

Step-by-step explanation:

This is an example of a contingent liability.

A contingent liability can be described as a liability which its likely occurrence depends on the outcome of an uncertain future event.

In the accounts, the contingent liability will therefore be recorded if the contingency is probable and it is reasonably possible to estimate the amount of the liability.

In the quesion, it is stated the contingency is probable and that they estimate that the amount of the loss will be $300,000. Therefore, the proper accounting treatment for the contingency is "$300,000 amount should be accrued as a liability".