Question

Burger barn has been named as a plaintiff in a $5 million lawsuit filed by a customer over the addictive nature of the company's french fries. burger barn's attorneys have advised them that the likelihood of a future obligation from the suit is remote. as a result of the lawsuit, burger barn should:

Answer 1

Burger Barn should disclose the lawsuit in the notes to the financial statements. As it is unlikely to garner future obligations from this suit, based from the company's attorneys, it is not necessary to recognize the $5 million as a liability on the balance sheet.