Assume That Krenzel Company Is Subject to a Class Action

question 13

Multiple Choice

Assume that Krenzel Company is subject to a class action lawsuit from its customers resulting from the failure of one of its projects.The suit was filed on November 10,2012 and properly disclosed in Krenzel's December 31,2012 financial statements.How would a settlement of this lawsuit on January 17,2013 be properly reflected in Krenzel's financial statements?

• A) The financial statements would not reflect the settlement of the lawsuit because it occurred after the date of the financial statements.
• B) Krenzel would prepare pro forma financial statements to reveal the effects of this settlement.
• C) Krenzel would adjust its disclosure of the lawsuit to reflect the effects of this settlement.
• D) Krenzel would provide a separate disclosure to persons known to be relying on its financial statements to describe the effects of this settlement.

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Definitions:

Obsessive-Compulsive

Referring to a disorder characterized by unwanted, persistent thoughts (obsessions) and repetitive behaviors (compulsions) that an individual feels the urge to perform.

Avoidant

Characterized by a pattern of social inhibition, feelings of inadequacy, and a hypersensitivity to negative evaluation.

Personality Disorder

A type of mental disorder characterized by enduring maladaptive patterns of behavior, cognition, and inner experience, exhibited across many contexts and deviating from those accepted by the individual's culture.

Anxious Cluster

Refers to a group of personality disorders characterized by high levels of anxiety and fearfulness, including avoidant, dependent, and obsessive-compulsive personality disorders.