Warren Advertising becomes aware of a lawsuit after the end of the fiscal year, but prior to the issuance of financial statements. A loss should be accrued and a liability should be reported if the amount can be reasonably estimated and:

A) The cause for action occurred prior to the end of the fiscal year.

B) The damages would be payable within a year.

C) Both a. and b.

D) The contingency should not be accrued.

Question

Giada Bonilla

Business

21 February, 19:46

Warren Advertising becomes aware of a lawsuit after the end of the fiscal year, but prior to the issuance of financial statements. A loss should be accrued and a liability should be reported if the amount can be reasonably estimated and:

A) The cause for action occurred prior to the end of the fiscal year.

B) The damages would be payable within a year.

C) Both a. and b.

D) The contingency should not be accrued.

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Answers (1)

Know the Answer?

Kiana Conrad · Answer 1

The answer is: A) The cause for action occurred prior to the end of the fiscal year.

Explanation:

Warren Advertising should always accrue its losses or liabilities according to the following basic accounting principles:

Accrual principle: Transactions must be recorded in the periods when they actually occur, not necessarily than in the periods when there are cash flows associated with them.

Conservatism principle: Expenses and liabilities must be recorded as soon as possible, revenue and assets only when they occur.