Reference no: EM133052524

Question - Alpha Company and Bravo Company are two separate entities, which are currently engaged in litigation.  Bravo Company is suing Alpha Company for a violation of trade regulations.  Currently, Alpha Company believes that a loss in the range of $5 million - $10 million is probably.  While Alpha is not certain of the amount of the loss, legal experts agree that the loss will more likely than not be $8 million.  Given this information, should Alpha accrue a CONTINGENT LOSS, and if so, how much?  Make sure to cite the FASB ASC down to the paragraph level to support your answer.

Assume that in the next year, the lawsuit is settled in court and Alpha ends up losing $9 million in the lawsuit.  However, Alpha appeals the verdict.  Again, citing guidance contained in the FASB ASC regarding contingent losses down to the paragraph level, what should Alpha do with respect to their contingent loss (i.e. should they adjust the amount of their accrued loss?  Should the adjustment go to retained earnings as a prior period adjustment or should it be considered an additional expense in the new year, etc.?)