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A customer of RoughEdge Sharpeners alleges that RoughEdge's new razor sharpener had a defect that resulted in serious injury to the customer. RoughEdge believes the customer has a 51% chance of winning the case, and that if the customer wins the case, there is a range of losses of between $1,000,000 and $3,000,000 in which any number is equally likely to occur. Under U.S. GAAP, RoughEdge should accrue a liability in the amount of:

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Answer:

RoughEdge should accrue a liability of $0.

Explanation:

A contingent liability is to be accumulated when the chances are feasible, and the amount can be determined with reasonable accuracy.

RoughEdge should accrue a liability of $0 since he believes that the customer has a 51% chance of winning the case, and a 51% probability is less than the typical interpretation of probable.

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