Question

This year, Port City was sued for injuries sustained when a citizen slipped and broke her hip on the icy City Hall steps. The City attorney estimates the City will be held liable by the courts and a judgment of $300,000 will result. Because of the nature of the case it will likely be four years before the City makes any payment related to the accident. The present value of the likely future payment is $251,000.

Required:
a) In the General Fund, at the end of the current fiscal year, Port City should recognize a liability of ___________.

Answer 1

$0

Step-by-step explanation:

The reason is that the City attorney only estimated, not actual, that the court will hold the City liable that will lead to $300,000 judgement.

Also, since it is stated in the question the City will not make any payment related to the accident until after four years due to the nature of the case indicates that there is no liability to be recognized Port City in the General Fund at the end of the current fiscal year.