A company has a lawsuit pending with regard to patent infringement. The amount of the loss can be estimated and has a probable chance of occurrence. What journal entry is required?
A)debit Lawsuit Loss and credit Cash
B)debit Estimated Lawsuit Loss and credit Cash
C)debit Cash and credit Estimated Lawsuit Liability
D)debit Estimated Lawsuit Loss and credit Estimated Lawsuit Liability

Question

Quizplus · Accepted Answer

When a loss is both probable and can be estimated, it should be recorded by debiting an expense account (Estimated Lawsuit Loss) and crediting a liability account (Estimated Lawsuit Liability).

A Company Has a Lawsuit Pending with Regard to Patent