A customer got serious food poisoning from Tasty Feast restaurant on March 30, 20x2, necessitating a trip to the emergency room.

On April 5, 20x2, the customer initiated a lawsuit. At December 31, 20x2, Tasty Feast estimated its probable loss to be $50,000.

In January, 20x3, before issuance of Tasty Feast's financial statements, a judge ruled in favor of the customer and awarded the customer $80,000 in damages.

Must the company recognize the effects of this ruling in its 20x2 financial statements? Explain.

Question

Business

Skittles

1 October, 10:38

A customer got serious food poisoning from Tasty Feast restaurant on March 30, 20x2, necessitating a trip to the emergency room.

On April 5, 20x2, the customer initiated a lawsuit. At December 31, 20x2, Tasty Feast estimated its probable loss to be $50,000.

In January, 20x3, before issuance of Tasty Feast's financial statements, a judge ruled in favor of the customer and awarded the customer $80,000 in damages.

Must the company recognize the effects of this ruling in its 20x2 financial statements? Explain.

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Answers (1)

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Frederick Clark · Answer 1

Yes, the company must recognise the effects of this ruling in its 20x2 financial statements

Explanation:

The must be recognised because it is and event that occurred during the accounting period, it is therefore obligatory to adjust the financial statements