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In November 2019, the State of Minnesota filed suit against Huggins Manufacturing Company, seeking penalties for violations of clean air laws. When the financial statements
- In November 2019, the State of Minnesota filed suit against Huggins Manufacturing Company, seeking penalties for violations of clean air laws. When the financial statements were issued in 2020, Huggins had not reached a settlement with state authorities, but legal counsel advised Huggins that it was probable the company would have to pay $140,000 in penalties. Accordingly, the following entry was recorded:
Losslitigation | 140,000 | |
Liabilitylitigation | 140,000 | |
Late in 2021, a settlement was reached with state authorities to pay a total of $284,000 in penalties.
- At the beginning of 2021, Jantzen Specialties, which uses the sum-of-the-years-digits method, changed to the straight-line method for newly acquired buildings and equipment. The change increased current year net earnings by $379,000.
Required: For each situation: 1. Identify the type of change. 2. Prepare any journal entry necessary as a direct result of the change, as well as any adjusting entry for 2021 related to the situation described.
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