ExpertMedium1 markMultiple Choice
CPA · Question 38 · Area III: Select Transactions
A company has a probable loss contingency estimated to be between $100,000 and $200,000. No amount within the range is more likely than any other. What amount should be accrued?
A company has a probable loss contingency estimated to be between $100,000 and $200,000. No amount within the range is more likely than any other. What amount should be accrued?
Answer options:
A.
$200,000
B.
$100,000
C.
$150,000
D.
$0
How to approach this question
US GAAP: If Probable + Range + No Best Estimate -> Accrue Minimum. <br/>(Note: IFRS accrues Midpoint).
Full Answer
B.$100,000✓ Correct
Under ASC 450, if a loss is probable and can be reasonably estimated as a range, and no amount is better than another, the MINIMUM amount in the range is accrued. The potential for additional loss is disclosed.
Common mistakes
Using the midpoint (average).
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