Question

Van Rushing Hunting Goods' fiscal year end on December 31. At the end of the 2024 fiscal year, the company had notes payable of $4.2 million due on February 8, 2025. Rushing sold 3.0 million shares of its $0.25 par, common stock on February 3, 205, for $3.0 million. The proceeds from that sale along with $1.2 million for the maturation of some 3-month CDs were used to pay the notes payable on February 8.

Through his attorney, one of Rushing's construction workers notified management on January 5, 2025, that he planned to sue the company for $1 million related to a work-site injury on December 20, 2024. As of December 31, 2024, management has been unaware of the injury, but reached an agreement on February 23, 2025, to settle the matter by paying the employee's medical bills of $70,500.

Rushing's financial statements were finalized on March 3, 2025.

Required:

1. What amount(s) if any, related to the situations desired should Rushing report among current liabilities in its balance sheet at December 31, 2024?

2. What amount(s) if any, related to the situations described should Rushing report among long-term liabilities in the balance sheet at December 31, 2024?

3. Assume that, as of March 3, management does not think it is probable that it will suffer a material loss because of the injury. What amount(s) if any, related to the situations described should Rushing report among current liabilities and long-term liabilities in its balance sheet at December 31, 2024 if the settlement agreement has occurred on March 15, 2025, instead?

4. What amount(s) if any, related to the situations described should Rushing report among current liability and long-term in its balance sheet at December 31, 2024 if the work-site injury has occurred on January 3, 2025, instead?

1. Current liability
2. Long-term liability
3. Current liability
3. Long-term liability
4. Current liability
4. Long-term liability

Answer 1

As of December 31, 2024, Van Rushing should report as current liabilities the notes payable of $4.2 million. No long-term liabilities should be reported related to the described situations. If the lawsuit is neither known nor probable before the fiscal year-end or the injury event occurred after the fiscal year-end, no liabilities should be reported.

Step-by-step explanation:

In a business financial context, we need to determine the appropriate accounting treatments for specific situations faced by Van Rushing Hunting Goods as of their fiscal year end, December 31, 2024. Here is the analysis based on the given information:

1. Current Liability

At December 31, 2024, Van Rushing Hunting Goods should report the notes payable of $4.2 million as a current liability in the balance sheet since it is due within the next year, specifically on February 8, 2025.

2. Long-term Liability

There should be no long-term liability reported in the balance sheet at December 31, 2024, concerning the situations described.

3. Current and Long-term Liability - Probable Material Loss Evaluation

If the management does not consider a material loss probable and the settlement agreement occurs on March 15, 2025, no liability related to the work-site injury should be reported in the balance sheet at December 31, 2024, since it was not known nor probable before the fiscal year-end.

4. Current and Long-term Liability - Change of Injury Date

If the work-site injury had occurred on January 3, 2025, instead of December 20, 2024, there would be no liability to report related to this event in the balance sheet at December 31, 2024, as this happened after the fiscal year-end.

Answer 2

At December 31, 2024, Rushing should report the following amount related to the situations described among its current liabilities:

Accrued Liability for the work-site injury: $70,500

How to explain

This is the amount of the settlement agreement reached on February 23, 2025, for the employee's medical bills related to the work-site injury that occurred on December 20, 2024.

This accrued liability should be recognized as of December 31, 2024.

The notes payable of $4.2 million due on February 8, 2025, should not be reported as a current liability at December 31, 2024, as it is not due within one year of the balance sheet date. Instead, it should be classified as a non-current liability.