Chapter 4: Question 30Q (page 180)

On January 30, 2016, a suit was filed against Frazier Corporation under the Environmental Protection Act. On August 6, 2017, Frazier Corporation agreed to settle the action and pay $920,000 in damages to certain current and former employees. How should this settlement be reported in the 2017 financial statements? Discuss.

Short Answer

Expert verified

The settlement of the lawsuit would be considered a non-operational expense.

Step by step solution

Meaning of Financial statements

Financial statements are the progress reportsof the business entities that are prepared to ascertain the overallgrowth of the business. Such reports are prepared annually and communicated to various concerned users.

Treatment of lawsuit

According to the situation mentioned above, the company should create a provision for the lawsuit in the books on December 31, 2016, but the company has not done the same.

At present, the company must show the settlement amount as an expense in the income statement’s non-operating expense.

Unlock Step-by-Step Solutions & Ace Your Exams!

Full Textbook Solutions
Get detailed explanations and key concepts
Unlimited Al creation
Al flashcards, explanations, exams and more...
Ads-free access
To over 500 millions flashcards
Money-back guarantee
We refund you if you fail your exam.

Start your free trial

Over 30 million students worldwide already upgrade their learning with Vaia!

Recommended explanations on Business Studies Textbooks

View all explanations

What do you think about this solution?

We value your feedback to improve our textbook solutions.

THOMPSON CORPORATION
TRIAL BALANCE
DECEMBER 31, 2017
	Debit (\()	Credit (\))
Purchase Discounts		\(10,000
Cash	\)189,700
Accounts receivables	105,000
Rent Revenue		18,000
Retained Earnings		160,000
Salaries and Wages payable		18,000
Sales Revenue		1,100,000
Notes Receivables	110,000
Accounts payable		49,000
Accumulated Depreciation		28,000
Sales discount	14,500
Sales return and allowances	17,500
Notes payable		70,000
Selling expenses	232,000
Administrative expenses	99,000
Common Stock		300,000
Income tax expenses	53,900
Cash Dividends	45,000
Allowance for Doubtful Accounts		5,000
Supplies	14,000
Freight-In	20,000
Land	70,000
Equipment	140,000
Bonds Payable		100,000
Gain on Sale of Land		30,000
Accumulated Depreciation		19,600
Inventory	89,000
Buildings	98,000
Purchases	610,000
Totals	\(1,907,600	\)1,907,600

Short Answer

Step by step solution

Meaning of Financial statements

Treatment of lawsuit

One App. One Place for Learning.

Most popular questions from this chapter

Recommended explanations on Business Studies Textbooks

Business Case Studies

Influences On Business

Introduction to Business

Intermediate Accounting

Strategic Direction

Operational Management

Study anywhere. Anytime. Across all devices.