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A Client Is Involved in Several Different Law Suits That

question 18

Essay

A client is involved in several different law suits that are all pending at the end of its fiscal year.The controller wants to know if the cases must be accrued in the accounts, disclosed in the footnotes, or neither of these.
Required:
Write an explanation of the criteria used to determine whether an accrual or a disclosure is required for loss and gain contingencies.


Definitions:

Limited Partnership

A form of partnership featuring both general partners, with unlimited liability, and limited partners, with liability limited to their investment.

Tax-Paying Entity

An individual or organization required by law to pay taxes to a governmental authority.

Federal Income Tax

An annual financial burden placed by the U.S. federal government on the income of different entities including individuals, corporations, and trusts.

Personal Liability

The legal responsibility of an individual to settle debts or legal claims from their own assets.

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