_____ on 12/31/06, a Danish Subsidiary Accrued a Litigation Liability

Multiple Choice

_____ On 12/31/06, a Danish subsidiary accrued a litigation liability of 100,000 krones ($40,000 when translated at the current rate at 12/31/06) , even though the probability of payment is remote. The outcome is not expected to be determined until 2007. The worksheet entry required at 12/31/07 (not 12/31/06) will result in which of the following (assuming no change in the exchange rate during 2007) ?

A) Debit Retained Earnings 100,000 krones.
B) Credit Retained Earning 100,000 krones.
C) Debit Retained Earnings $40,000.
D) Credit Retained Earnings $40,000.
E) Credit Litigation Expense for 100,000 krones or $40,000.