A) What Non-Accounting Factors Are Important Before Evaluating Whether a Pending

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Examlex · Accepted Answer

The Answer is a) Factors that are important for consideration include:
1. When did the cause of action occur? No liability should be recognized until after the cause of action occurs. Cause of action must occur before the balance sheet date.
2. Has the case come to trial?
3. Is there an appeal pending?
4. What is the probability of loss according to legal counsel?
5. Has this type of lawsuit occurred before? What was the outcome?
b) If a loss from a lawsuit is probable and the amount can be reasonably estimated, then a journal entry should be made to recognize the loss. If it is reasonably possible, then only note disclosure is required. If the chance of loss is remote, then nothing is required to be disclosed.

A) What Non-Accounting Factors Are Important Before Evaluating Whether a Pending

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