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Wharton Co. should accrue a liability for the lawsuit. Out of all the proposed scenarios, Wharton Co. will be on the hook for some amount of money to be paid when following the ASC code 450-20-25-1. How that should be recorded is dependent on the estimate of how much money will be paid out. According to ASC 450-20-25-2, the loss that Wharton can expect has to be reasonably estimated. However, that requirement shall not delay the accrual of the loss even if there are multiple amounts estimated. So ASC 450-20-25-5 states that the loss can be within a range of amounts that can be reasonably estimated.
With all that being said, Wharton Co. lawyers have stated that the lawsuit is baseless and offered a settlement to the plaintiff of $100,000. If Wharton Co. goes through with the lawsuit, it is almost guaranteed that the costs will be greater than the settlement offer of $100,000. A reasonable estimate for that cost is not given however. So the plaintiff has made a counter offer of $350,000. While that may be more expensive than Wharton Co.’s offer, it would still be a much cheaper option than losing the lawsuit and possibly cheaper than the legal fees that would be accrued whether Wharton Co. wins the lawsuit or not.
It is my opinion that Wharton Co. should take the plaintiff’s settlement offer of $350,000. It would allow the company to have a reasonable and safe number to record to the books while also potentially saving money from a lawsuit. With this amount, the contingent liability would be able to be recorded in accordance with ASC 450-20-55-12.

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