A Suit for Breach of Contract Seeking Damages of $3,000,000

question 3

Multiple Choice

A suit for breach of contract seeking damages of $3,000,000 was filed against Clark Corporation on March 1, 2017. Clark's legal counsel believes that a negative outcome is highly probable. A reasonable estimate of the court's award to the plaintiff is $600,000. Settlement is expected to occur during the latter part of 2017. What accounting is necessary for the year ending June 30, 2017?

• A)Note disclosure only
• B)Accrue a contingent liability of $3,000,000 and provide note disclosure explaining the contingency
• C)Accrue a contingent liability of $600,000 and provide note disclosure explaining the contingency
• D)No disclosure or accrual necessary

---

Definitions:

Receivables

Amounts owed to a company by its customers for goods or services provided on credit.

Internal Control

Strategies and systems put in place by an organization to maintain the reliability of its financial and accounting data, encourage responsible behavior, and deter deceitful practices.

Invoice Approval

The process of reviewing and verifying invoices from suppliers before payment is made, to ensure that the charges are correct and services or goods were received.

Bonded

Refers to a business or individual that has purchased a surety bond, a type of insurance policy that protects against losses caused by the bonded party.