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Should the company record a loss reserve at year end

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Reference no: EM132531818

Contingent liabilities

Facts:

  • A company is sued prior to the finacial statement date (i.e year end ). Before the financial statements are issued the suit is settled for $750,000 a material loss t the company
  • Before the year end a company is assessed $200,000 in additional taxes as a result of an IRS audit . The company tax attorney believe that a settlement with the IRS can be reach for $110,000. settlement has not been reched before the finacial statement are issued

Question 1 : Should the company record a loss reserve at year end and if so for how much?

Question 2 : Should the company disclosure this matter in the footnote to the company finacial statememt at year end ?

Reference no: EM132531818

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