Heimbaugh County Recently Lost a Lawsuit That It Had Been

Multiple Choice

Heimbaugh County recently lost a lawsuit that it had been defending in court for two years relating to an incident involving one of the county's police officers. The county had always deemed a loss to be improbable. However, a judgment was ultimately rendered against the county and, immediately prior to the current fiscal year end, the county was ordered to pay a total of $300,000. $75,000 is due at year end but payment had not been completed. The remainder is to be paid in installments of $75,000 for an additional three years. How will the external financial statements of the county be affected in the year the court case was settled?

A) The General Fund statements should report both expenditures and a claims and judgments liability of $300,000.
B) The General Long-Term Liabilities accounts should report a $300,000 liability.
C) The General Fund statements should report expenditures and a current liability of $75,000 and the General Long-Term Liabilities accounts should report a liability of $225,000.
D) The General Fund statements should report a prior period adjustment for $75,000 and General Long-Term Liabilities liability of $225,000.