An Employee Sued Guynan Company for Wrongful Termination

Multiple Choice

An employee sued Guynan Company for wrongful termination. Guynan's lawyers believe that the likelihood of an unfavorable verdict is remote; however, if the employee is successful, the loss might range between $0 and $500,000. What impact, if any, will this lawsuit have on Guynan's financial statements and disclosures?

A) Guynan should recognize a $500,000 loss and related liability immediately and prepare a special disclosure.
B) Guynan should recognize a $500,000 loss and related liability immediately, but not prepare a special disclosure.
C) Guynan should recognize a $500,000 loss immediately, but not recognize a related liability or prepare a special disclosure.
D) This lawsuit will have no impact on Guynan's financial statements, but Guynan should prepare a special disclosure.
E) This lawsuit will have no impact on Guynan's financial statements or disclosures.