During 20X1, Violet, Inc. and one of its suppliers became involved in a legal dispute. By...

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During 20X1, Violet, Inc. and one of its suppliers became involved in a legal dispute. By...

During 20X1, Violet, Inc. and one of its suppliers became involved in a legal dispute.

By the end of 20X1, Violet's attorney's advised Violet that an unfavorable outcome was probable.

Further, Violet accountants estimated damages to be as low as $200,000 and as high as $300,000.

Violet's insurance policy limits the company's exposure to $50,000 in losses.

How much should Violet, Inc. report on its December 20X1 Balance Sheet as a contingent liability?

The answer to this question is NOT $200,000 NOR is it $250,000. How does insurance plays into this?

business accounting

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Answer 1

Answer #1

Solution:

Violet, Inc.report on its December 20X1 Balance Sheet; $50,000 as a contingent liability because if estimated damages are between $200,000 to $300,000, but we will get insurance claims against this loss and our maximum exposure of loss is $50,000 only.

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Answer 2

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During 20X1, Violet, Inc. and one of its suppliers became involved in a legal dispute. By...

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