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During year 8, Leucothea Co. became involved in a legal dispute with a supplier. At December 31, year 8, Leucothea’s legal advisor believed that an unfavorable outcome was probable. A reasonable estimate of resulting monetary damages is $100,000 but could be as much as $200,000. Leucothea has legal liability insurance coverage that limits their loss to $80,000. After the year 8 financial statements were issued, Leucothea agreed to settle the case for $125,000. What amount of accrued liability should Leucothea have reported in its December 31, year 8 balance sheet?

Respuesta :

jepessoa

Answer:

$80,000

Explanation:

An accrued liability is an incurred expense that hasn't been paid yet.

Since Leucothea didn't know the outcome of the trial but it had reasons to believe it would be unfavorable (with a $100,000 cost), then it should record it as an expense owed and an unrealized loss. Since the company's insurance covered $80,000, then that should be the amount recorded under accrued liabilities. The remaining $20,000 should be recorded as unrealized loss due to the lawsuit.

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