Cocoa Corporation is preparing its December 31, 2023 financial statements. On March 1, the company settled a lawsuit for which it had accrued a contingent liability (loss) of $1,600,000. The amount of the settlement was $1,750,000. The financial statements were issued on March 10, 2024. Which of the following is correct regarding the settlement of the lawsuit? Question 9Answer a. The additional loss of $150,000 will be reported in the 2024 financial statements. b. No contingent liability will be reported on the 2023 Balance Sheet since the suit has been settled. c. This is not a recognized subsequent event because this information about the settlement was not known at year-end. Therefore, no adjustment is required. d. Cocoa should make an adjusting entry to adjust the estimated loss to the actual amount. Net income for 2023 will decrease by $150,000 (ignoring taxes).
Cocoa Corporation is preparing its December 31, 2023 financial statements. On March 1, the company settled a lawsuit for which it had accrued a
Question 9Answer
The additional loss of $150,000 will be reported in the 2024 financial statements.
No contingent liability will be reported on the 2023
This is not a recognized subsequent event because this information about the settlement was not known at year-end. Therefore, no adjustment is required.
Cocoa should make an
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