At the end of the year O'Toole General Hospital, which carries no medical malpractice insurance, had the

Question:

At the end of the year O'Toole General Hospital, which carries no medical malpractice insurance, had the following list of malpractice claims:
1. Mr. Seymour Green, a heart patient, ﬁled a claim for $600,000. Based on Mr. Green's medical records, the hospital's attorneys are not conﬁdent of winning the case if it goes to trial. If settled out of court, the settlement could range from $300,000 to $400,000.
2. Ms. Les Monet ﬁled a claim for $750,000. The hospital's attorneys are 95 percent conﬁdent that the hospital will win this claim if it goes to trial. The hospital is awaiting trial and will not settle the claim for any amount.
3. The hospital has 30 smaller claims outstanding with an average claim of $15,000. Based on past history, management has estimated that the hospital will lose 70 percent of the claims, with an average loss of 40 percent on the amount claimed.
4. Three additional claims, averaging $15,000 relating to incidents occurring before the ﬁscal year end, will probably be settled during the following year.
a. Consistent with GAAP, indicate the amount, if any, that the hospital should establish as a liability on its for each of the malpractice claims.
b. Indicate any note disclosures the hospital should make in its ﬁnancial statements for the malpractice claims.

Balance Sheet
Balance sheet is a statement of the financial position of a business that list all the assets, liabilities, and owner’s equity and shareholder’s equity at a particular point of time. A balance sheet is also called as a “statement of financial...