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

Question

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According to Generally Accepted Accounting Principles (GAAP), when a government entity settles a lawsuit, the amount should be recorded as an expenditure in the year the settlement is paid. In this case, the County estimated a liability of $100,000 and set aside $100,000 in claims payable. When the settlement was reached, the actual liability was $150,000, so the County will need to debit expenses for $50,000 (the difference between the estimated liability and the actual liability) and debit claims payable for the remaining $100,000. The credit side of the entry will be cash for the full $150,000 settlement payment. Therefore, option D is the correct entry.

Several Years Ago, Grant County Was Sued by a Former