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 felt that 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

Question

Quizplus · Accepted Answer

The entry should reflect the fact that the County had estimated the liability in a prior year and recorded a portion of it as Claims Payable. Since the judgment exceeded the original estimate, an additional expense of $50,000 (the difference between the estimated liability and the actual judgment) needs to be recorded. The entry should be:

Debit Expenses $50,000 (to adjust the estimated liability to the actual liability)
Debit Claims Payable $100,000 (to record the remainder of the liability not previously recorded)
Credit Cash $150,000 (to reflect the payment made)

Therefore, the correct answer is D.

Several Years Ago, Grant County Was Sued by a Former