Reference no: EM132945226

The Commonwealth of Virginia filed suit in October 2019 against Northern Timber Corporation, seeking civil penalties and injunctive relief for violations of environmental laws regulating forest conservation. When the 2020 financial statements were issued in 2021, Northern had not reached a settlement with state authorities, but legal counsel advised Northern Timber that it was probable the ultimate settlement would be $1,083,000 in penalties.

The following entry was recorded:

General Journal

                               Debit                  Credit

Loss-litigation   1,083,000

Liability-litigation                         1,083,000

Late in 2021, a settlement was reached with state authorities to pay a total of $668,000 to cover the cost of violations.

Problem 1. Prepare any journal entries related to the change.

Problem 2. Would a disclosure note be required for the change in estimate?