Question

Punkeytown carries no insurance for possible claims and, as of January 1, 2019 (the start of its fiscal year), Punkeytown had no outstanding claims. During 2019 a town water main burst, flooding the basements of two property owners. The property owners sued the town for damages. The town settled one claim in December 2019 for $5,000 and expected to pay it in early January 2020. The town’s counsel believes the probable settlement amount on the second claim will be about $11,000, but he expected negotiations to drag on for 18 months before reaching agreement. Based on this information state how much Punkeytown will report as the liability for judgments and claims in its governmental fund balance sheet.

Answer 1

Answer: Will report a liability of $5000 for judgement debt and a claim of $11,000

Explanation:

The liability refers to the obligations of the firm which are certain is going to make payment as compensation.

The $5000 liability, although payment has not been made it's already Incurred by the company under the acural concept.

The claim of $11,000 is only probable and not certain even though amount and time of execution can be estimated, since it's not certain it will only be recorded as a claim in the goverments fund balance sheet.