89. Forbes Company has been named as the defendant in a class action lawsuit. Indicate whether each of the following statements regarding the lawsuit is true or false.
_____ a) If the outcome is likely, a liability should be recognized on the balance sheet for the full amount of the suit, even if the company's attorneys estimate the outcome be much lower.
_____ b) If the outcome is likely, but cannot be reasonably estimated, the contingency should be disclosed in the footnotes to the financial statements.
_____ c) If the outcome is reasonably possible, the contingency should be disclosed in the footnotes to the financial statements.
_____ d) Every lawsuit, regardless how frivolous, should be disclosed in the footnotes to the financial statements.
_____ e) If an active hurricane season has been predicted for the Florida gulf coast, businesses in that region should disclose contingencies for catastrophic loss in the footnotes to their financial statements.
90. The Chang Company provides a one-year warranty on all merchandise it sells. In 2011, the company recorded sales of $300,000. It estimated that the warranty costs on these sales would amount to $3,000. In July 2012, Chang provided services under the terms of the product warranty in the amount of $150. Indicate whether each of the following statements is true or false.
_____ a) Chang's adjusting entry recording warranties at the end of 2011 reduced total assets and total equity.
_____ b) Chang's adjusting entry recording the warranties at the end of 2011 increased Chang's total liabilities.
_____ c) The July 2012 entry reduced total assets and net income for 2012.
_____ d) The July 2012 entry reduced Chang's total liabilities.
_____ e) The adjusting entry recorded at the end of 2011 decreased Chang's revenue for the year.