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JAR recorded probable litigation losses: what type of accoun

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JAR recorded a liability in 2009 for probable litigation losses totaling $4 million. Ultimately, $5 million of claims were filed.

What type of accounting change is this and how would it be treated?

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Solution Summary

I have explained what kind of change this is and given you the journal entries needed in the year of the revision for both a $5 million payout or a change in the estimated liability to $5 million.

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I am presuming that you mean that $5 million of claims were paid. This is a change in estimate and all changes in estimates are reported "prospectively." That is, you would accrue that added $1 million in litigation losses in the current period. Here are the entries:
..........................................debit......................credit
Litigation liability ...

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  • MSc, University of Virginia
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