Question

Wyatt Co. has a probable loss that can only be reasonably estimated within a range of outcomes. No single amount within the range is a better estimate than any other amount. The loss accrual should beA. The maximum of the range.B. The mean of the range.C. Zero.D. The minimum of the range.

Answer 1

Answer: D. The minimum of the range

Explanation: A contingency situation arises when the outcome is uncertain which when resolved in the future possibly, could create a loss. Accounting for contingencies is essentially done to recognize only those losses that are probable at the balance sheet date and for which a loss amount can be reasonably estimated. This loss is only accrued if it meets both criteria and thus, if no amount within the range is a better estimate than any other amount, the amount at the low end of the range is accrued while the amount at the high end is disclosed.