The State of Alabama Filed Suit Against Edwards Chemical Company

Multiple Choice

The State of Alabama filed suit against Edwards Chemical Company for violations of water pollution laws in 2018. During 2018, the company accrued a $300,000 loss for litigation. At the end of 2019, Edwards was able to settle with the State for $245,000. What entry should Edwards make when it pays the State in December, 2019?

A) $$\begin{array} { | l | r | r | } \hline \text { Litigation Liability } & 300,000 & \\\hline \text { Gain on Litigation } & & 55,000 \\\hline \text { Cash } & & 245,000 \\\hline\end{array}$$
B) $$\begin{array} { | c | r | r | } \hline \text { Litigation Liability } & 245,000 & \\\hline \text { Cash } & & 245,000 \\\hline\end{array}$$
C) $$\begin{array} { | c | r | r | } \hline \text { Litigation Liability } & 300,000 & \\\hline \text { Recovery of a Loss } & & 55,000 \\\hline \text { Cash } & & 245,000 \\\hline\end{array}$$
D) $$\begin{array} { | c | r | r | } \hline \text { Litigation Liability } & 300,000 & \\\hline \text { Retained Earnings } & & 55,000 \\\hline \text { Cash } & & 245,000 \\\hline\end{array}$$