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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 Preview

    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 ...

    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.

    $2.19

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