Richard has the following potential liabilities: William, a former employee, has sued Richard for $880,000. Richard contacted his attorney, and the case is believed to be frivolous. Carter sued Richard for an undisclosed amount for a class action lawsuit. Richard thinks it's frivolous, but his attorneys indicate a loss is probable for $88,000. Charles sued Richard because he slipped outside of Richard's store. The claim is $264,000 and Richard is certain he will lose the case but believes Charles will settle. The attorneys agree and based on conversations with Charles's attorneys, have stated that it is remote the claim will be settled for $255,200. Charles's attorneys indicated he would be willing to accept either cash of $242,000 or shares of Richard's closely-held common stock currently valued at $233,200. Richard would prefer not to settle in cash. Richard is suing William for $264,000 because William is in violation of a non-compete agreement he has with Richard. Richard is certain he will win and so are his attorneys. In addition, William has privately admitted to Richard could be right, but William intends to fight it. None of the above have been settled as of December 31, 2025. Prepare the necessary entry to record the liability and receivable, if any, for the situations above. (Credit account titles are automatically indented when the amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter O for the amounts. List debit entry before credit entry.) Account Titles and Explanation Debit Credit
Richard has the following potential liabilities: William, a former employee, has sued Richard for $880,000. Richard contacted his attorney, and the case is believed to be frivolous. Carter sued Richard for an undisclosed amount for a class action lawsuit. Richard thinks it's frivolous, but his attorneys indicate a loss is probable for $88,000. Charles sued Richard because he slipped outside of Richard's store. The claim is $264,000 and Richard is certain he will lose the case but believes Charles will settle. The attorneys agree and based on conversations with Charles's attorneys, have stated that it is remote the claim will be settled for $255,200. Charles's attorneys indicated he would be willing to accept either cash of $242,000 or shares of Richard's closely-held common stock currently valued at $233,200. Richard would prefer not to settle in cash. Richard is suing William for $264,000 because William is in violation of a non-compete agreement he has with Richard. Richard is certain he will win and so are his attorneys. In addition, William has privately admitted to Richard could be right, but William intends to fight it. None of the above have been settled as of December 31, 2025. Prepare the necessary entry to record the liability and receivable, if any, for the situations above. (Credit account titles are automatically indented when the amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter O for the amounts. List debit entry before credit entry.) Account Titles and Explanation Debit Credit
Chapter5: Gross Income: Exclusions
Section: Chapter Questions
Problem 35P
Related questions
Question
Transcribed Image Text:Richard has the following potential liabilities:
William, a former employee, has sued Richard for $880,000. Richard contacted his attorney, and the case is believed to be
frivolous.
Carter sued Richard for an undisclosed amount for a class action lawsuit. Richard thinks it's frivolous, but his attorneys
indicate a loss is probable for $88,000.
Charles sued Richard because he slipped outside of Richard's store. The claim is $264,000 and Richard is certain he will lose
the case but believes Charles will settle. The attorneys agree and based on conversations with Charles's attorneys, have stated
that it is remote the claim will be settled for $255,200. Charles's attorneys indicated he would be willing to accept either cash
of $242,000 or shares of Richard's closely-held common stock currently valued at $233,200. Richard would prefer not to
settle in cash.
Richard is suing William for $264,000 because William is in violation of a non-compete agreement he has with Richard.
Richard is certain he will win and so are his attorneys. In addition, William has privately admitted to Richard could be right, but
William intends to fight it.
None of the above have been settled as of December 31, 2025. Prepare the necessary entry to record the liability and receivable, if
any, for the situations above. (Credit account titles are automatically indented when the amount is entered. Do not indent manually. If no entry
is required, select "No Entry" for the account titles and enter O for the amounts. List debit entry before credit entry.)
Account Titles and Explanation
Debit
Credit
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