[SusanQ]

I need to know what the journal entry was for a settlement of free repairs in a class lawsuit, by looking at the income statement.

What the settlement provides: In addition to free repairs, the Settlement Agreement makes available three categories of benefits to Class Members. The 1st is Repair Reimbursement; the 2nd is Replacement Cost; and the 3rd is Purchase Certificates.

Problem: Refer 2 company's income statement for fiscal 2004. What journal entry did company record to account for the front-load washer settlement during 2004?

Above Operating Income in Inc. statement is "Front-load washer litigation" yr ended amount of $33,500. Below Operating Income is "Adverse judgement on pre-acquisition distributor lawsuit" yr ended amount of $(10,505). This is the all I see related to settlement.

I don't know what is to be debited or credited and for what amount. Obviously, the numbers don't match up, but the question doesn't say the amount settled.

Help please!

[Just Looking]

When a loss through litigation is considered likely (in this case already awarded) and the amount can be quantified, the company sets up a charge to an expense and a credit to a liability. The journal entry for the front-end washer settlement would have been something like (account names could vary, but you don't seem to have a balance sheet to look at):

Front-load washer litigation..................................33,500
Front-load washer litigation contingency..............................33,500.00


That answers your question as stated. It appears there was another lawsuit for the year regarding a distributor.

[SusanQ]

I do have the balance sheet, but don't really see anything on it.
CURRENT ASSETS: *Cash & cash equiv. *A/R, *Inventories, * Deferred inc. tax, *Prepaids & other current assets, *Discontinued current assets
THEN NON-CURRENT ASSETS ARE GIVEN, THEN
PPE: *Land, *Bldgs&improvements, *Machinery & equip, *Construction in progress
CURRENT LIABILITIES: *Notes payable, *accts pay. *compensation to employees, *Accrued liabilities, * current portion of L-T debt, * discontinued current liab
NONCURRENT LIAB.: *L-T Debt, *Postretirement benefit liab. * accrued pension cost, *other non current liab
SE: *Pref'd stk, *Common stk, *Retained Earnings, *Cost of common stk in treasury, *Employee stk plans, * accum. Other comprehensive loss

[Just Looking]

It should be a liability account, current for amount expected to be paid within a year and non-current for remainder. I would expect to see something with a "contingency" type of title. The only ones here that come close are the accrued liabilities accounts.

[SusanQ]

Litigation exp and litigation liab. I forgot not all entries are listed on income statement so I had to figure out which account they may have used. Thank you because you sent me into the right direction.