Great Adventures is a defendant in litigation involving a biking accident during
ID: 2417984 • Letter: G
Question
Great Adventures is a defendant in litigation involving a biking accident during one of its adventure races. The front tire on one of the bikes came off during the race, resulting in serious injury to the rider. However, Great Adventures can document that each bike was carefully inspected prior to the race. It may have been that the rider loosened the wheel during the race and then forgot to tighten the quick-release mechanism.
For each of the following scenarios, record the necessary entry.
1. The likelihood of a loss occurring is probable, and the estimated loss is $140,000.
2. The likelihood of a payment occurring is probable, and the amount is estimated to be in the range of $92,000 to $154,000.
3. The likelihood of a payment occurring is reasonably possible, and the estimated amount is $140,000
4. The likelihood of a payment occurring is remote, while the estimated potential amount is $140,000
Great Adventures is a defendant in litigation involving a biking accident during one of its adventure races. The front tire on one of the bikes came off during the race, resulting in serious injury to the rider. However, Great Adventures can document that each bike was carefully inspected prior to the race. It may have been that the rider loosened the wheel during the race and then forgot to tighten the quick-release mechanism.
Explanation / Answer
Account Title & Description Dr Cr 1 Loss $140,000 Contingent Liability $140,000 (As it is probable so it’s a contingent libility, so contigent liability will be created and loss is debited 2 Loss $92,000 Contingent Liability $92,000 (the contigent liability will be created fot the minimum amount and a disclosure will be made in financila statemnents as afootnote which discloses the range from $92000- $154000 3 If there is loss which is reasonably possible than no entry is required but we have to make a full disclousre in a footnote in financila statement to describe the contigency of $140000 4 If likelihood is remote no entry and no disclourse is required in the financial statements
Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.