As a result of uninsured accidents during the year, personal injury suits for $750,000 and $80,000 have been filed against your company. It is the judgement of your legal counsel that an unfavorable outcome is unlikely in the $80,000 case but that an unfavorable verdict approximating $600,000 will probably result in the $750,000 case.

a. Explain the Financial Accounting Standards Board’s criteria for contingent liabilities.

b. Discuss, based on that criteria that you identified in “a”, how your company should present each of these two separate lawsuits in your financial statements.