Hutton Cape Company, Which Prepares Annual Financial Statements, Is Preparing

Essay

Hutton Cape Company, which prepares annual financial statements, is preparing adjusting entries on December 31. Analysis indicates the following:
1. The company is the defendant in an employee discrimination lawsuit involving $50,000 of damages. Legal counsel believes it is unlikely that the company will have to pay any damages.
2. Employees are entitled to one day's vacation for each month worked. The company employs 50 people who earn $120 per day and 30 who earn $160 per day. All employees worked the entire year.
3. The company is a defendant in a $500,000 product liability lawsuit. Legal counsel believes that the company probably will have to pay the amount requested.
4. The company has a defined benefit pension plan in which total pension expense for December is $50,000. The company funds one half of the expense and records a liability or the balance due.
Instructions
Prepare any adjusting entries necessary at the end of the year.