The Commonwealth of Virginia filed suit in October 2014, against Northem Timber

Question

The Commonwealth of Virginia filed suit in October 2014, against Northem Timber Corporation seeking civil penalties and injunctive relief for violations of environmental laws regulating forest conservation. When the financial statements were issued in 2015, Northern had not reached a settlement with state authorities, but legal counsel advised Northern Timber that it was probable the ultimate settement would be $1,250,000 in penalties. The following entry was recorded: Loss-litigatio 1,250,000 Liability-litigation 1,250,000 Late in 2016, a settlement was reached with state authorities to pay a total of $800,000 to cover the cost of violations. Required: 1. Prepare any journal entries related to the change. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.) View transaction list Journal entry worksheet Record the revision of the liability on the basis of the new estimate Note: Enter debits before credits. Event General Journal Debit Credit Record entry Clear entry View general journal

Explanation / Answer

Liability—litigation 450000 =1250000-800000     Gain—litigation 450000

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