Recognition of contingent liability in financial statement.
Your company has been sued. The plaintiff's accounting expert calculated $1 million in damages. You are willing to settle the case for as much as $500,000, and you have made a settlement offer $250,000. Your attorney tells you that if you go to trial there is a "slim" chance you will win on liability and pay no damages. How would you report this contingent liability on the financial statements of your company? Justify your answer. There may be more than one acceptable accounting treatment. Pick one and explain why?