Boston Trombley Company Is a Defendant in a Lawsuit Alleging

Multiple Choice

Boston Trombley Company is a defendant in a lawsuit alleging damages of $3 billion. It is probable that Boston Trombley will lose the suit. The litigation is anticipated to continue for several years, but no reasonable estimate can be made at this time regarding ultimate financial responsibility. This situation is an example of:

A) an estimated liability that must appear in Boston Trombley Company's balance sheet.
B) a loss contingency that should be disclosed in the notes to Boston's financial statements.
C) an $3 billion expense to be recorded in the income statement during the year of the suit.
D) none of these. No accrual or disclosure is required in Boston's financial statements.