Several years ago, Grant County was sued by a former county employee for wrongful discharge. Although it was to be contested by the county, at the time of the lawsuit the attorneys believed that the county was likely to lose and the estimated amount of the ultimate judgment would be $100,000. This year, the case was finally settled with a judgment against the county of $150,000, which was paid. Assuming that the county maintains its books and records in a manner to facilitate the preparation of its government-wide financial statements, the entry in the current year should be
A) Debit Expenditures $150,000; Credit Cash $150,000.
B) Debit Expenses $150,000; Credit Cash $150,000.
C) Debit Expenditures $50,000 and Claims payable $100,000; Credit Cash $150,000.
D) Debit Expenses $50,000 and Claims payable $100,000; Credit Cash $150,000.

Question

Quizplus · Accepted Answer

The county should have recorded a liability of $100,000 in prior years when the loss was probable and estimable. In the current year, the additional $50,000 expense is recognized, and the total cash payment of $150,000 is recorded.

Several Years Ago, Grant County Was Sued by a Former