The State of Alabama Filed Suit Against Edwards Chemical Company

question 9

Multiple Choice

The State of Alabama filed suit against Edwards Chemical Company for violations of water pollution laws in 2018. During 2018, the company accrued a $300,000 loss for litigation. At the end of 2019, Edwards was able to settle with the State for $245,000. What entry should Edwards make when it pays the State in December, 2019?

• A) \[\begin{array} { | l | r | r | }
• \hline \text { Litigation Liability } & 300,000 & \\
• \hline \text { Gain on Litigation } & & 55,000 \\
• \hline \text { Cash } & & 245,000 \\
• \hline
• \end{array}\]
• B) \[\begin{array} { | c | r | r | }
• \hline \text { Litigation Liability } & 245,000 & \\
• \hline \text { Cash } & & 245,000 \\
• \hline
• \end{array}\]
• C) \[\begin{array} { | c | r | r | }
• \hline \text { Litigation Liability } & 300,000 & \\
• \hline \text { Recovery of a Loss } & & 55,000 \\
• \hline \text { Cash } & & 245,000 \\
• \hline
• \end{array}\]
• D) \[\begin{array} { | c | r | r | }
• \hline \text { Litigation Liability } & 300,000 & \\
• \hline \text { Retained Earnings } & & 55,000 \\
• \hline \text { Cash } & & 245,000 \\
• \hline
• \end{array}\]

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