Lifschultz Industries, a small gas meter company, once reported a book value of less than zero (i.e., reported liabilities exceeded reported assets). Yet, in late March, the company's share price skyrocketed on news that it was pursuing a massive antitrust and racketeering lawsuit against three of the country's biggest trucking companies: Consolidated Freightways, Roadway Services, and Yellow Freight Systems. Lifschultz alleged that these trucking companies conspired to engage in anticompetitive activity, driving it out of the trucking business. The suit, filed in U.S. district court in South Carolina, sought $1.8 billion. The three trucking companies said nothing about the suit publicly other than to footnote it as a "contingency" in their annual reports.

REQUIRED:

a. Explain how Lifschultz can report negative book value and, at the same time, have its shares so highly valued in the stock market.

b. Explain the differences between how Lifschultz should account for the suit and how the three trucking companies should account for it.

c. Provide economic reasons why the plaintiff and defendants account for the same dispute differently.