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Required on consolidation for contingent liability

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Reference no: EM132465995

When Scotch Ltd secured ownership of all of the shares of McGraw Ltd, McGraw Ltd was involved in a court case with a former employee. McGraw Ltd disclosed this information as a contingent liability, and the company's solicitor determined the fair value of the probable payout to settle the case to be $50 000.

if an adjustment is required on consolidation for a contingent liability and why? Explain the journal entry line by line at acquisition date, and then if the court case is won by McGraw Ltd.

Journal Entry

At Acq date

DR Goodwill 50,000

CR Contingent Liability 50,000

If the case won by McGraw Ltd

DR Contingent Liability 50,000

CR Consolidated Retained Earning 50,000

This is the completed Journal Entry, I'm not sure if it is correct and I don't know how to explain this Journal Entry.

This is a company accounting question about contingent liability.

Reference no: EM132465995

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