Question

A restaurant has been sued because a customer claims to have found a bug in her chili. The company's lawyers believe there is only a remote possibility that the lawsuit will result in an actual liability. Which of the following actions should be taken by the company's management?

A. The situation should be described in a note to the financial statements.
B. The possible liability should be ignored
C. The liability should be estimated and recorded as an expense.
D. Management should consider resigning

Answer 1

Answer:

The correct answer is B

Explanation:

As the restaurant is sued as the customer claims that the customer found the bug in chili. The lawyers of the company believe that it is the remote possibility, that the lawsuit consequence into an actual liability.

The action which is to be taken by the management of the company is that the possible liability need to be ignored as it is the remote possibility, so, no actions required.