Question

6. Carpenter Company is being sued for $2,000,000 for an injury caused to a child as a result of alleged negligence while the child was visiting the Carpenter plant in March 2017. The suit was filed in July 2017. Carpenter’s lawyer states that it is probable that Carpenter will lose the suit and be found liable for a judgment costing anywhere from $200,000 to $900,000. The lawyer also states that the most probable judgment is somewhere around $400,000. Management of Carpenter is strongly opposed to disclosing this event within their financial statements. What would you recommend to your client Carpenter as to reporting the suit in its 2017 financial statements? Discuss the rationale for your answer. Also include any disclosures, if necessary, that should be made in the financial statements

Answer 1

answer:

the discussion of the rationale and its made in the financial statements below:

• Since the occasion of claim being led is an unexpected occasion, and it is probble that the organization will lost the suit nd should pay the harms.
• In case of most likely unforeseen obligation it is necessitated that we compensate for the misfortune by making an arrangement for the unexpected risk and in the above case the organization needed to make an arrangement fo $400000.
• It is additionally important to make an exposure in the monetary articulations with respect to the unexpected obligation, It's plausible probability, measure of arrangement and so on.