In May of 2016,Raymond Financial Services became involved in a penalty dispute with the EPA.At December 31,2016,the environmental attorney for Raymond indicated that an unfavorable outcome to the dispute was probable.The additional penalties were estimated to be $770,000 but could be as high as $1,170,000.After the year-end,but before the 2016 financial statements were issued,Raymond accepted an EPA settlement offer of $900,000.Raymond should have reported an accrued liability on its December 31,2016,balance sheet of:
A)$ 770,000.
B)$ 900,000.
C)$ 970,000.
D)$1,170,000.

Question

Quizplus · Accepted Answer

The accrual should be based on the best estimate of the outcome, which at December 31, 2016 was the estimated range of $770,000 to $1,170,000. However, since Raymond accepted an EPA settlement offer of $900,000 after year-end, that should be the recorded liability on the balance sheet. Therefore, the correct answer is B) $900,000.

In May of 2016,Raymond Financial Services Became Involved in a Penalty