Question

how to write a business letter and memo

7.6 Accrual for a Lawsuit, Writing an Issues Memo Your company has just been named as defendant in a lawsuit related to a food poisoning incident. The plaintiff is suing for $200,000 in damages, your company believes the ulti mate amount of loss could range between $25,000 and $175.000. with no amount in the range more likely than other amounts in the range. The lawsuit is expected to be resolved in the second quarter of next year. Citing from authoritative literature, prepare a brief accounting issues memo to the files addressing (1) whether a loss should be accrued, and for what amount, and (2) what disclosures should be made in the company's financial statements.

Answer 1

MEMO

This is in regards to the lawsuit filed against the company for an amount of $ 200,000. Management is of view that the amount of loss could range between $ 25000 and $ 175,000 with no amount in the range more likely than other amount in the range.

As per ASC-450-20-30-1, if no amount in the range more likely than other amounts in the range and entity should record the minimum amount in the range as the accued liability. Thus, management shall accrue contingent liability of $ 25,000 and should be properly disclosed in the notes to financial statements along with all the details of the case.

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