The Commonwealth of Virginia filed suit in October 2016 against Northern Timber

Question

The Commonwealth of Virginia filed suit in October 2016 against Northern Timber Corporation, seeking civil penalties and injunctive relief for violations of environmental laws regulating forest conservation. When the 2017 financial statements were issued in 2018, Northern had not reached a settlement with state authorities, but legal counsel advised Northern Timber that it was probable the ultimate settlement would be $1,139,000 in penalties. The following entry was recorded: General Journal Debit 1,139,000 Credit Loss-litigatior Liability-litigation 1,139,000 Late in 2018, a settlement was reached with state authorities to pay a total of $664,000 to cover the cost of violations Required 1. Prepare any journal entries related to the change 2. Would a disclosure note be required for the change in estimate?

Explanation / Answer

Earlier entry has to be reversed, since the amount of Liability has been changed, So the entries would be-

For Reversal,

Loss-Litigation A/C (Dr.)$1,139,000

To Liability-Litigation A/C (Cr.)$1,139,000

For Correct Liability,

Loss-Litigation A/C (Dr.)$664,000

To Liability-Litigation A/C (Cr.)$664,000

For Payment,

Liability-Litigation A/C (Dr.)$664,000

To Bank A/C (Cr.)$664,000

Related Questions

Navigate

• Browse (All)
• Browse T
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.