申論題

一、You have been assigned to examine the financial statements of Zarle Company for the year ended December 31, 2019. You discover the following situations.

5. During November 2019, a competitor company filed a patent-infringement suit against Zarle claiming damages of $220,000. The company’s legal counsel has indicated that an unfavorable verdict is probable and a reasonable estimate of the court’s award to the competitor is $125,000. The company has not reflected or disclosed this situation in the financial statements.