Sandy Shoes Foot Inc

Sandy Shoes Foot Inc. is involved in litigation regarding a faulty product sold in a prior year. The company has consulted with its attorney and determined that it is possible that they may lose the case. The attorneys estimated that there is a 40% chance of losing. If this is the case, their attorney estimated that the amount of any payment would be $500,000. What is the required journal entry as a result of this litigation?

A) Debit Litigation Expense for $500,000 and credit Litigation liability for $500,000.
B) No journal entry is required.
C) Debit Litigation Expense for $200,000 and credit Litigation Liability for $200,000.
D) Debit Litigation Expense for $300,000 and credit Litigation Liability for $300,000.

Correct Answer:

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