A company is
required to report a liability on its balance sheet when it expects to lose a
lawsuit and the amount of the expected loss can be reasonably estimated (FASB)
Conversely, a company is prohibited from reporting a receivable in its balance
sheet when it expected to win a lawsuit even though that is probable and the
amount of the expected gain can be reasonably estimated.
Does the
expected loss meet the definition of a liability found in the conceptual
framework? Explain
Does the
expected gain meet the definition of an asset found in the conceptual
framework? Explain
Why do you think accountants treat
these seemingly similar situations differently? Explain