Buchanan Company recently was sued by a competitor for patent infringement. Atto

Question

Buchanan Company recently was sued by a competitor for patent infringement. Attorneys have determined that it is probable that Buchanan will lose the case and that a reasonable estimate of damages to be paid by Buchanan is $304,380. In light of this case, Buchanan is considering establishing a $119,930 self-insurance allowance. What entry, if any, should Buchanan record to recognize this loss contingency? (If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts. Credit account titles are automatically indented when amount is entered. Do not indent manually.)

Explanation / Answer

Solution:

Journal entry to record contingency loss -

Journal Debit Credit Loss from lawsuit - Estimated 119,930 Estimated liability for lawsuit 119,930

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