Dow Chemical was sued for infringing Bayer Industries' patent No. 123X45 in March of 2019. Dow's lawyers believed it was probable it was going to lose and estimated damages were $4,000,000 to $7,000,000. They also believed the high end of the range was more-likely-than-not. Dow's year-end is December 31. On June 1, 2020, after Dow's 2019 financial statements were issued, the plaintiff accepted a cash settlement of $5,000,000. Dow Chemical paid the liability on the same day. 1. Show, in good form, the journal entry made to record the settlement.

Dow Chemical was sued for infringing Bayer Industries' patent No. 123X45 in March of 2019. Dow's lawyers believed it was probable it was going to lose and estimated damages were $4,000,000 to $7,000,000. They also believed the high end of the range was more-likely-than-not. Dow's year-end is December 31. On June 1, 2020, after Dow's 2019 financial statements were issued, the plaintiff accepted a cash settlement of $5,000,000. Dow Chemical paid the liability on the same day. 1. Show, in good form, the journal entry made to record the settlement.

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

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Concept explainers

Contingent Liabilities and Provisions

A contingent liability can be defined as a liability the occurrence of which is dependent upon the happening of an uncertain future event. It is generally recorded in the books only when the amount of liability can be reasonably estimated and the contingency is likely to occur shortly.

Question

Dow Chemical was sued for infringing Bayer Industries' patent No. 123X45 in March of 2019. Dow's
lawyers believed it was probable it was going to lose and estimated damages were $4,000,000 to
$7,000,000. They also believed the high end of the range was more-likely-than-not. Dow's year-end
is December 31. On June 1, 2020, after Dow's 2019 financial statements were issued, the plaintiff
accepted a cash settlement of $5,000,000. Dow Chemical paid the liability on the same day.
1.
Show, in good form, the journal entry made to record the settlement.

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