An Employee of Susann Inc

question 57

Multiple Choice

An employee of Susann Inc. failed two drug tests. The employee has sued and Susann Inc.'s. lawyers appropriately believe that, at best, it is only reasonably probable that Susann Inc. will lose the court case. The proper accounting treatment of the lawsuit will

• A) increase earnings per share.
• B) increase the debt/asset ratio.
• C) decrease the current ratio.
• D) not affect the debt/equity ratio.

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Definitions:

Financial Liabilities

Obligations that require an entity to pay money or deliver financial assets to another party in the future, which can arise from borrowing, purchasing goods or services on credit, or issuing bonds.

Bank Overdraft

A facility allowing an entity to withdraw more money from a bank account than has been deposited, within a previously agreed limit.

Unsecured Convertible Notes

Debt instruments that can be converted into a predetermined amount of the issuer's equity and do not have collateral backing.

Debentures Issued

Long-term securities issued by a company to raise capital, backed only by the general creditworthiness and reputation of the issuer.