CPADuring
2004, a former employee of Dane Co. began a suit against Dane for wrongful termination in
November 2003. After considering all of the facts, Dane's legal counsel believes that the former
employee will prevail and will probably receive damages of between $1,000,000 and $1,500,000, with
$1,300,000 being the most likely amount. Dane's financial statements for the year ended December 31,
2003, will not be issued until February 2004. In its December 31, 2003, balance sheet, what amount
should Dane report as a liability with respect to the suit?
a. $0
b. $1,000,000
c. $1,300,000
d. $1,500,000
Explanation
Choice "c" is correct

Why not the answer is not 1,000,000?Thanks

When choosing an amount for contigent loss:

First, choose an amount with highest chance (in this case, 130,000)

Second, if there is a range of amount wiht equal levels of probability, choose the leaset one

Best estimate is the key.

If no estimate is available, then the lowest one in the range.

Becker explains it better.