Pitt Company is the defendant in a lawsuit filed by Hoffman in Year 1 disputing the validity of a copyright held by Pitt. At December 31 of Year 1, Pitt determined that Hoffman would probably be successful against Pitt for an estimated amount of $1,440,000. Appropriately, an $1,440,000 loss was accrued by a charge to income of Pitt for the year ended December 31 of Year 1.

On December 15 of Year 2, Pitt and Hoffman agreed to a settlement providing for cash payment of $900,000 by Pitt to Hoffman and transfer of Pitts copyright to Hoffman. The carrying amount of the copyright on Pitts accounting records was $216,000 at December 15 of Year 2.

a. What would be the effect of the settlement of this liability on Pitts pretax income before income tax in Year 2? b. Record the entry on December 15 of Year 2 for Pitt Company.

Recording and Reporting a Legal Contingency Pitt Company is the defendant in a lawsuit filed by Hoffman in Year 1 disputing the validity of a copyright held by Pitt. At December 31 of Year 1, Pitt determined that Hoffman would probably be successful against Pitt for an estimated amount of $1,440,000. Appropriately, an $1,440,000 loss was accrued by a charge to income of Pitt for the year ended December 31 of Year 1. On December 15 of Year 2, Pitt and Hoffman agreed to a settlement providing for cash payment of $900,000 by Pitt to Hoffman and transfer of Pitt's copyright to Hoffman. The carrying amount of the copyright on Pitt's accounting records was $216,000 at December 15 of Year 2 . a. What would be the effect of the settlement of this liability on Pitt's pretax income before income tax in Year 2? b. Record the entry on December 15 of Year 2 for Pitt Company