ABC IncHas 50 Pending Lawsuits for Which It May Be Found

question 25

Multiple Choice

ABC Inc.has 50 pending lawsuits for which it may be found liable.The expected value (sum of the probabilities of the outcomes multiplied by their respective payouts) amounts to $100,000.However,the company's controller believes that the most likely outcome will be a payout of $120,000.Which of the following statements pertaining to the accrual of the provision is correct?

• A) There is a large population of lawsuits, so a provision of $100,000 must be accrued.
• B) There is a large population of lawsuits, so a provision of $120,000 must be accrued.
• C) There is a small population of lawsuits, so a provision of $100,000 must be accrued.
• D) There is a small population of lawsuits, so a provision of $120,000 must be accrued.