Analyzing Contingent and Other Liabilities: The following independent situations represent various types of liabilities. Analyze each situation and indicate which of the following is the proper accounting treatment for the company: (a) record a liability on the balance sheet, (b) disclose the liability in a financial statement footnote, or (c) neither record nor disclose any liability.
1. A stockholder has filed a lawsuit against. attorney's have reviewed the facts of the case. Their review revealed similar lawsuits have never resulted in a cash award and it is highly unlikely that this lawsuit will either.
2. signed a 60-day, 10% note when it purchased items from another company.
3. The EPA notifiesthat a state where it has a plant is filing a lawsuit for groundwater pollution againstand another company that has a plant adjacent toplant. Test results have not identified the exact source of the polution. manufacturing process often produces by-products that can pollute groundwater.
4. manufactured and sold products to a retailer that later sold the products to consumers. will replace the product if it is found to be defective within 90 days of the sale to the consumer. Historically, 1.2% of the products are returned for replacement.

1. Situation is that a Stockholder has filed a lawsuit against C corporation.

Accounting treatment: Neither record nor disclose any liability.

Since the liability is not at all possible, it should be neither recorded nor disclosed.

2. Situation: F signed a 60 days, 10% note when it purchased items from another company.

Account treatment: Record the liability on the balance sheet.

Real liability that is both certain and the liability amount can also be reasonably estimated.  It should be recorded on the balance sheet.

3. The EPA notifies S co that a state where it has a plant is filing a lawsuit.

Account treatment: Disclose the liability in a financial statement footnote.

The liability is probable but not certain and liability amount can also be reasonably estimated.  It should be disclosed in financial statement footnote.

4. Situation: Company manufactured and sold products to a retailer that later sold product to consumer.

Account treatment: Record the liability on the balance sheet.

Real liability that is both certain and the liability amount can also be reasonably estimated.  It should be recorded on the balance sheet.

the correct answer option is b. a single paragraph.

explanation:

when you are thinking about paragraph​ topics, you should always choose a subject that can be adequately addressed in a single paragraph.

a paragraph is a piece of writing consisting of a few sentences that deal with a single theme. it has only a single idea that the paragraph revolves around and talks about.

so a paragraph topic must be chosen wisely where a single idea can be communicated in a single paragraph.