Hotspot Inc. is involved in a lawsuit as result of an accident that took place September 5,
2020. The lawsuit was filed on November 1,2020, and claims damages of $100,000.
Instruments:
(a) Assume that at December 31, 2020, Hotspot’s attorneys feel that there is a greater
than 50% chance that Hotspot will lose the lawsuit and be required to pay $100,000.
How should the company account for this lawsuit?
(b) Assume instead that at December 31, 2020, Hotspot’s attorneys feel that there is less
than 50% chance that Hotspot could lose the lawsuit and be required to pay $
100,000. How should the company account for this lawsuit??