Question

Ingalls Company is a jeweler located in a shopping mall in a midsize city in Ohio. During December of Year One, an unfortunate accident occurs. Mrs. Rita Yeargin trips over a giant, singing Rudolph set up by the mall management and goes sprawling into Ingalls’s store where she cracked her head on a display case. She spent several days in the hospital with a sprained ankle, severely bruised elbow, and a concussion. Prior to the end of the year, Mrs. Yeargin’s lawyer files papers to sue both the mall management company and Ingalls for $1,000,000. Ingalls’s insurance company informs the jeweler that the store policy does not cover accidents involving giant, singing Rudolphs. Ingalls’s attorney is unsure as to what a jury might do in this case because of the unusual nature of the event. He estimates that a loss of $800,000 is probable but that Ingalls will only be liable for 20 percent of that amount since the Rudolph actually belonged to the mall.

a. Determine if Ingalls needs to record a journal entry on December 31, Year One, and if so, prepare that entry.

b. Ingalls pays Mrs. Yeargin $97,000 on July 11, Year Two, to settle this claim. Make the journal entry for Ingalls at that time.

Answer 1