Starbucks being sued for $5m over the amount of ice in iced drinks. What is the...
Starbucks being sued for $5m over the amount of ice in iced drinks.
What is the appropriate accounting treatment of the lawsuit in Starbucks' financial statements? Should Starbucks recognize a liability, disclose a contingent liability or do nothing about it?
Homework Answers
As per the GAAP's when there is a probability that a liability may incur based on certain outcome of a future event, then the company must recognise it as a contingent liability and disclose it clearly under the balance sheet.
In the given case, Starbucks is sued for $5 million which is still a pending lawsuit, which is a future outcome and unpredictable, so Starbucks must disclose it as a contingent liability under the balance sheet.
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