Question

Great Adventures is a defendant in litigation involving a biking accident during one of its adventure races. The front tire on one of the bikes came off during the race, resulting in serious injury to the rider. However, Great Adventures can document that each bike was carefully inspected prior to the race. It may have been that the rider loosened the wheel during the race and then forgot to tighten the quick-release mechanism.

For each of the following scenarios, record the necessary entry. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

Required:

1. The likelihood of a payment occurring is probable, and the estimated amount is $110,000.

2. The likelihood of a payment occurring is probable, and the amount is estimated to be in the range of $90,000 to $140,000.

3. The likelihood of a payment occurring is reasonably possible, and the estimated amount is $110,000.

4. The likelihood of a payment occurring is remote, while the estimated potential amount is $110,000.

Answer 1

Journal entries

S.No	Particulars	Debit	Credit
1	Loss from case	$110,000
	Contingent liability		$110,000
	(Being Payment occurring is probable , so we have to record the loss)
2	Loss from case	90,000
	Contingent liability		90,000
	(Being Payment occurring is probable, so we have to record the loss, however we can provide the minimum amount. But disclosure may be between range $90,000 to $140,000)
3	No entry
	(Since likelihood of a payment is reasonably possible we no need to record entry but we have to make a disclosure in foot note)
4	No entry
	(Since likelihood of a payment is remote, we no need to record entry and not even foot note)

I hope this will help you.