Pacific Cruise Lines is a defendant in litigation involving a swimming accident

Question

Pacific Cruise Lines is a defendant in litigation involving a swimming accident on one of its three cruise ships. Required: 1. The likelihood of a payment occurring is probable, and the estimated amount is S1.21 million. 2. The likelihood of a payment occurring is probable, and the amount is estimated to be in the range of $1.01 to $1.21 million. 3. The likelihood of a payment occurring is reasonably possible, and the estimated amount is $1.21 million. 4. The likelihood of a payment occurring is remote, while the estimated potential amount is $1.21 million. Record the necessary entry for the scenarios given above. (f no entry is required for a transaction/event, select "No journal entry required" in the first account field. Enter your answers in dollars, not in millions. (e. 5.5 should be entered as 5,500,000).) View transaction list Journal entry worksheet Record the contingent liability if needed Note: Enter debits before credits. General Debit Credit Record entry View general journal Clear entry

Explanation / Answer

SOLUTION

Explanation-

2. Pacific Cruise Lines should record a loss and a liability for the minimum amount ($1.02million) and disclose the range between $1.02 and $1.21 million in the footnotes to the financial statements.

3. If the likelihood of loss is reasonably possible rather than probable, we record no entry but make full disclosure in a footnote to the financial statements to describe the contingency.

4. If the likelihood of loss is remote, disclosure is usually not required.

S.No. Account titles and Explanation Debit ($) Credit ($) 1. Loss 1,210,000 Contingent liability 1,210,000 2. Loss 1,010,000 Contingent liability 1,010,000 3. No journal entry required 4. No journal entry required

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