In May 2011, the Marlins Company became involved in litigation. As a result of this litigation, it is probable that Marlins will have to pay $700,000. In July 2011, a competitor commenced a suit against Marlins alleging violation of antitrust laws seeking damages of $1,100,000. Marlins denies the allegations, and the likelihood of Marlins paying any damages is remote. In September 2011, Braves County brought action against Marlins for $900,000 for polluting Lake Tomahawk. It is reasonably possible that Braves County will be successful, but the amount of damages Marlins will have to pay is not reasonably determinable. What amount, if any, should be accrued by a charge to income in 2011?

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Quizplus · Accepted Answer

The $700,000 should be accrued because it is probable that Marlins will have to pay this amount. The other cases do not meet the criteria for accrual: the antitrust case is remote, and the pollution case is only reasonably possible and not determinable.

In May 2011, the Marlins Company Became Involved in Litigation