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Unified Airlines is being sued by Northeast Airlines for $5,000,000. At the end of the year,...

Unified Airlines is being sued by Northeast Airlines for $5,000,000. At the end of the year, Unified feels it is probable that it will pay $5,000,000 at some point in the following year. What should Unified and Northeast record at the end of the year concerning the lawsuit? Unified does not record any contingent loss; Northeast records $5,000,000 contingent gain. Unified records $5,000,000 contingent loss; Northeast does not record any contingent gain. Unified records $5,000,000 contingent loss; Northeast records $5,000,000 contingent gain. Neither company records a contingent loss or gain.

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Expert Solution

Unified records $5,000,000 contingent loss; Northeast does not record any contingent gain.
A contingent liability is recorded when it is probable and the amount can be reasonably estimated.
Contingent gains are not recorded until received.
As Unified feels it is probable it will pay $5,000,000, a contingent liability should be recorded.

ekkarill92 answered 2 years ago
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