question archive In May 2005, TITANIC Inc became involved in litigation
In May 2005, TITANIC Inc became involved in litigation
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In May 2005, TITANIC Inc became involved in litigation. As a result of this ligation, it is probable that TITANIC will have to pay $1.400.000. In July 1, 2005 a competitor commenced a suit against TITANIC alleging violation of antitrust laws seeking damages of $2.200.000. TITANIC denies the allegations and the likelihood TITANIC paying any damaged is remote. In September 2005, the City of ZZ brought action against TITANIC for $1.800.000 for polluting the city. It is reasonable possible that the city will be successful bit the amount of damages. What amount, if any, should be accrued by a charge to income in 2005?
a. $5.400.000
b. $3.200.000
c. $1.400.000
d. $0
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in the given case , TITANIC Inc became involved in litigation. As a result of this ligation, it is probable that TITANIC will have to pay $1.400.000.
Other Two cases of Amount of $2200000 & $1800000 are seems to be uncertain as in first case likelihood of payment is remote but in second case , amount payable is not certain . hence no liability can be recognized in both cases.
From above we can say that Titanic will include the amount of $1400000 in the books of accounts and would be charged to income tax.
Hence Answer "C " is correct.
