Below Are Several Accounting Transactions Recorded by Lucy, Accounting Clerk

question 165

Essay

Below are several accounting transactions recorded by Lucy, accounting clerk for B&B Industrial.
1. To setup a liability in which we are being sued for $ 500,000. The lawyers say it is unlikely that we will have to pay out this amount and the lawsuit will most likely be dismissed. I have set up the amount based on the best reasonable estimate. Even if the lawsuit is dismissed, this event will have a substantial negative effect on the company's financial position.
2. No entry
B&B Industrial provided a guarantee on a loan for the company's owner. The owner needed to obtain a large loan for medical purposes. No entry needed to account for the loan guarantee.
3. No entry
No entry needed to set up the reduction in wages that may be incurred due to employees going on strike.
4. To record the decline in sales due to a recession
5. To set up the amount that will be received when we win our lawsuit.
6. No Entry
No entry created for a lawsuit that we will most likely lose because a reasonable amount cannot be estimated.
Instructions
For each transaction, determine if the accounting clerk correctly recorded the transaction. If you disagree, provide the correct transaction or disclosure requirement.

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Definitions:

Natural Rate

The rate of any economic activity that is considered to be sustainable in the long term without causing inflation; often used in the context of unemployment.

Natural Rate

The equilibrium rate of unemployment or interest when the economy is operating at a full capacity without short-term fluctuations.

Natural Rate

A concept referring to the level of economic activity or rate (such as unemployment) that corresponds to the economy's long-term potential or equilibrium state.

Long-run Unemployment

A situation where the unemployment rate persists at a high level for a long period of time, often due to structural changes in the economy.