Question

The 16-Bit Corporation, whose December 31, 2019 year-end financial statements were issued February 16, 2020, had the following transactions. For each transaction, indicate the amount that 16-Bit would show as a current liability on its December 31, 2019 balance sheet under US GAAP. Indicate $ “0” if no amount would be shown as a current liability.

In August, a worker was injured in the factory in an accident partially the result of his own negligence. The worker has sued 16-Bit for $800,000. Counsel believes it is reasonably possible that the outcome of the suit will be unfavorable and that the settlement would cost the company from $250,000 to $500,000

Answer 1

Answer:

Date	Particulars	Amount (Dr.)	Amount (Cr.)
Aug	Legal Claims Paid A/C                                        Dr.	$ 500,000
	To Claims payable A/C		$ 500,000
	(Being Liablity created for legal suits payable)

Disclosure :

a.The suit might result in an expense ranging between 250,000-500,000.

b.A liability of the maximum amount is being created in lieu of future claims expected to be paid off in the future.