Record no loss contingency but disclose all of the facts » Full Grade
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Question – Optichem Corporation is a manufacturer of toxic solvents. In October 2021, Optichem was notified of a class-action lawsuit involving one of its former products. Optichem’s attorneys have advised it is highly likely they will be held liable for damages ranging from $3,500,000 to $9,000,000. They further advised that Optichem would likely be able to recover at least 50% of damages from their suppliers. What should Optichem record and/or disclose as a result of these facts?
a. Record a loss contingency of $1,750,000 and disclose an additional contingency of up to $4,500,000.
b. Record a loss contingency of $3,500,000 and disclose an additional contingency of up to $9,000,000.
c. Record a loss contingency of $3,500,000, a gain contingency of $1,750,000 and disclose an additional net loss contingency of up to $4,500,000 after recovery from suppliers.
d. Record no loss contingency but disclose all of the facts given the uncertainty surrounding the company’s ultimate loss position.
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