Reference no: EM132790280
Problem 1: A former customer is suing Ajax Company for allegedly dangerous cleanser fumes.. Ajax' legal counsel advises that it is probable Ajax will lose the lawsuit. While the precise amount of damages is unknown, legal counsel believes it will fall within the range of $1,000,000 to $4,000,000. In Ajax' financial statements, how should this lawsuit be accounted for?
Option 1: Record a journal entry for the litigation loss and liability using the $1,000,000 amount.
Option 2: Record a journal entry for the litigation loss and liability using the $4,000,000 amount.
Option 3: Record no journal entry, but include a note to the financial statements describing the litigation and circumstances.
Option 4: Do nothing; including a note is tantamount to admitting guilt and it will be used against Ajax in court.
Option 5: None of the above.
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