linden corporation is a defendant in a lawsuit in which the plaintiff is seeking $1,000,000 in damages. the…

linden corporation is a defendant in a lawsuit in which the plaintiff is seeking $1,000,000 in damages. the company had terminated the plaintiff, george russell, from his position with linden after russell allegedly sold specifications for one of lindens new products to a competitor. lindens attorney believes that it is quite possible linden will lose the case and that, if so, damages could range from $100,000 to $200,000. regardless of the outcome of the case, lindens accountants estimate the company will incur an additional $5,000 in unemployment costs because of russells termination. the amount that linden should accrue because of the contingency in this situation is $100,000 $5,000 $200,000 $0

linden corporation is a defendant in a lawsuit in which the plaintiff is seeking $1,000,000 in damages. the company had terminated the plaintiff, george russell, from his position with linden after russell allegedly sold specifications for one of lindens new products to a competitor. lindens attorney believes that it is quite possible linden will lose the case and that, if so, damages could range from $100,000 to $200,000. regardless of the outcome of the case, lindens accountants estimate the company will incur an additional $5,000 in unemployment costs because of russells termination. the amount that linden should accrue because of the contingency in this situation is $100,000 $5,000 $200,000 $0

Answer

Explanation:

Step1: Determine accrual for lawsuit

When a loss - contingency is probable and the amount can be reasonably estimated, the company should accrue the loss. Here, it is probable that Linden will lose the case and the damages range from $100,000 - $200,000. The lower - bound of a range is accrued when no amount within the range is a better estimate. So, the amount to accrue for the lawsuit is $100,000.

Step2: Consider unemployment costs

The additional $5,000 in unemployment costs is not related to the contingency of the lawsuit outcome but rather a cost due to the termination. It is not part of the loss - contingency accrual for the lawsuit.

Answer:

$100,000