Question

newconnect.mheducation.com - 2020 Spring Term (1) Intermediate ... Chapter 13 - Assignments 1 and 2 Assignments 1 and 2 O Saved Help Save & Exit Subm 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 $1,000,000 in penalties. The following entry was recorded: General Journal Loss-litigation Liability-litigation Debit 1,000,000 Credit 1,000,000 Late in 2018, a settlement was reached with state authorities to pay a total of $600,000 to cover the cost of violations. ences Required: 1. Prepare any Journal entries related to the change. 2. Would a disclosure note be required for the change in estimate? Complete this question by entering your answers in the tabs below. Required 1 Required 2 Prepare any journal entries related to the change. (If no entry is required for a transaction/event, the first account field.) View transaction list Journal entry worksheet

Answer 1

Req 1) Change journal entries towards the reversal of the provision for Litigation expenses entry:
General Journal	Debit $	Credit $
Liability - litigation	400000			(1000000 - 600000)
Litigation expenses reversed		400000
(the not required provision for litigation expenses, now reversed)
Req 2)
Note: Reversal of Provision:
"As per the advise of Legal Counsel handling the suit filed by The Commonwealth
of Virginia against the company for violations of environmental laws, a provision
towards the penalties had been made to the extent of $1m. The case has been
settled for $0.6m, so now, balance provision is not required and reversed."