Relic Corporation acquires the assets and liabilities of Vware Company and reports goodwill of $40 million. At the time of the acquisition, Vware was a defendant in a customer's lawsuit, but it was expected that Vware would win, so the lawsuit was not recorded. Within a year of the acquisition, the lawyers persuade both parties to settle out of court for $8,000,000. How is this payment most likely to be reported? Credit cash, and debit:

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DThe payment for the lawsuit settlement would be reported as a loss on the income statement because it represents an expense related to the company's operations during the period. Additionally, the lawsuit liability, which was not initially recorded at the time of acquisition due to the expectation of winning the lawsuit, would now be recognized and settled, thus it should be debited to reflect the decrease in liability on the balance sheet.

Relic Corporation Acquires the Assets and Liabilities of Vware Company