Additional information about transactions and events occurring in 2024 follows: During 2023, the company accrued $100,000 for medical costs due to an accident caused by a driver. The amount was probable and estimatible. The lawsuit was settled for the full amount in 2024. However, the settlement has led the company lawyers to assess two additional potential claims: 1. The same driver was in an accident at the beginning of 2024. While the injuries were not significant, due to the history of accidents, the lawyers believe that it is probable that the injuried party will sue for damages. While the company cannot determine whether they will prevail in the suit, a payout of $450,000 is reasonably possible 2. The initial 2023 accident caused a chemical spill on company land. The EPA has assessed the damage, and fined the company $125,000. At the end of 2023, the company lawyers appealed the fine, and expected to pay a total of $105,000 for both the remediation costs, and additional fees. During 2024, the company lawyers decreased that estimate to $95,000. No journal entry was made during either year. The lawyers have approached you to determine whether there needs to be an accrual of these potential claims (ignore any tax effects).
Additional information about transactions and events occurring in 2024 follows: During 2023, the company accrued $100,000 for medical costs due to an accident caused by a driver. The amount was probable and estimatible. The lawsuit was settled for the full amount in 2024. However, the settlement has led the company lawyers to assess two additional potential claims: 1. The same driver was in an accident at the beginning of 2024. While the injuries were not significant, due to the history of accidents, the lawyers believe that it is probable that the injuried party will sue for damages. While the company cannot determine whether they will prevail in the suit, a payout of $450,000 is reasonably possible 2. The initial 2023 accident caused a chemical spill on company land. The EPA has assessed the damage, and fined the company $125,000. At the end of 2023, the company lawyers appealed the fine, and expected to pay a total of $105,000 for both the remediation costs, and additional fees. During 2024, the company lawyers decreased that estimate to $95,000. No journal entry was made during either year. The lawyers have approached you to determine whether there needs to be an accrual of these potential claims (ignore any tax effects).
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Please correct Solution with Explanation and do not give image format
Transcribed Image Text:Additional information about transactions
and events occurring in 2024 follows:
During 2023, the company accrued $100,000
for medical costs due to an accident caused
by a driver. The amount was probable and
estimatible. The lawsuit was settled for the
full amount in 2024. However, the settlement
has led the company lawyers to assess two
additional potential claims:
1. The same driver was in an accident at
the beginning of 2024. While the injuries
were not significant, due to the history of
accidents, the lawyers believe that it is
probable that the injuried party will sue
for damages. While the company cannot
determine whether they will prevail in the
suit, a payout of $450,000 is reasonably
possible
2. The initial 2023 accident caused a
chemical spill on company land. The EPA
has assessed the damage, and fined the
company $125,000. At the end of 2023,
the company lawyers appealed the fine,
and expected to pay a total of $105,000
for both the remediation costs, and
additional fees. During 2024, the
company lawyers decreased that
estimate to $95,000. No journal entry
was made during either year.
The lawyers have approached you to
determine whether there needs to be an
accrual of these potential claims (ignore any
tax effects).
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