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The CBAX Company is currently in litigation with the HAKI Company. The opinion of the legal...

The CBAX Company is currently in litigation with the HAKI Company. The opinion of the legal staff of CBAX for this litigation is as follows. Please explain in the spaces provided, the accounting consequences of each of these four opinions.  

Lawyer 1: It is probable that CBAX will lose the lawsuit and we can reasonably estimate the amount we will owe.

Lawyer 2: It is probable that CBAX will lose the lawsuit but we cannot reasonable estimate the amount we will owe.

Lawyer 3: It is possible that CBAX will lose the lawsuit.

Lawyer 4: It is remote that CBAX will lose the lawsuit.

What, in your opinion, should CBAX do?

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Answer #1

Lawyer 1 - Since it is probable that we will loss the lawsuit and the amount can be reasonably estimated, then CDAX should make provision for that contingent loss and should also make disclosure of the nature of contingency in the footnotes.

Lawyer 2 - Since it is probable that we will loss the lawsuit but the amount cannot be reasonably been estimated so CDAX should make disclosure of the nature of contingency and also the chances of lossing the lawsuit in its disclosure to financial statements.

Lawyer 3 - Since it is possible that we will loss the lawsuit, CDAX should make disclosure of nature of contingency and nature of possible loss in footnotes to financial statements.

Lawyer 4 - Since the loss is remote, CDAX should not make any disclosure of such contingency in its financial statements.

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