Nelson has the following potential liabilities: Davis, a former employee, has sued Nelson for $1.000.000. Nelson contacted his attorney, and the case is believed to be frivolous. . . Carter sued Nelson for an undisclosed amount for a class action lawsuit. Nelson thinks it's frivolous, but his attorneys indicate a loss is probable for $100,000. Tyler sued Nelson because he slipped outside of Nelson's store. The claim is $300,000 and Nelson is certain he will lose the case but believes Tyler will settle. The attorneys agree and based on conversations with Tyler's attorneys, have stated that it is remote the claim will be settled for $290,000. Tyler's attorneys indicated he would be willing to accept either cash of $275,000 or shares of Nelson's closely-held common stock currently valued at $265,000. Nelson would prefer not to settle in cash. Nelson is suing Davis for $300,000 because Davis is in violation of a non-compete agreement he has with Nelson. Nelson is certain he will win and so are his attorneys. In addition, Davis has privately admitted to Nelson could be right, but Davis intends to fight it. None of the above have been settled as of December 31, 2025. Prepare the necessary entry to record the liability and receivable, if any, for the situations above. (Credit account titles are automatically indented when the amount is entered. Do not indent manually. If no entry is required, select "No Entry for the account titles and enter O for the amounts. List debit entry before credit entry) Account Titles and Explanation Debit Credit
Nelson has the following potential liabilities: Davis, a former employee, has sued Nelson for $1.000.000. Nelson contacted his attorney, and the case is believed to be frivolous. . . Carter sued Nelson for an undisclosed amount for a class action lawsuit. Nelson thinks it's frivolous, but his attorneys indicate a loss is probable for $100,000. Tyler sued Nelson because he slipped outside of Nelson's store. The claim is $300,000 and Nelson is certain he will lose the case but believes Tyler will settle. The attorneys agree and based on conversations with Tyler's attorneys, have stated that it is remote the claim will be settled for $290,000. Tyler's attorneys indicated he would be willing to accept either cash of $275,000 or shares of Nelson's closely-held common stock currently valued at $265,000. Nelson would prefer not to settle in cash. Nelson is suing Davis for $300,000 because Davis is in violation of a non-compete agreement he has with Nelson. Nelson is certain he will win and so are his attorneys. In addition, Davis has privately admitted to Nelson could be right, but Davis intends to fight it. None of the above have been settled as of December 31, 2025. Prepare the necessary entry to record the liability and receivable, if any, for the situations above. (Credit account titles are automatically indented when the amount is entered. Do not indent manually. If no entry is required, select "No Entry for the account titles and enter O for the amounts. List debit entry before credit entry) Account Titles and Explanation Debit Credit
Chapter5: Gross Income: Exclusions
Section: Chapter Questions
Problem 35P
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Transcribed Image Text:Nelson has the following potential liabilities:
Davis, a former employee, has sued Nelson for $1,000,000. Nelson contacted his attorney, and the case is believed to be
frivolous.
·
Carter sued Nelson for an undisclosed amount for a class action lawsuit. Nelson thinks it's frivolous, but his attorneys indicate
a loss is probable for $100,000.
Tyler sued Nelson because he slipped outside of Nelson's store. The claim is $300,000 and Nelson is certain he will lose the
case but believes Tyler will settle. The attorneys agree and based on conversations with Tyler's attorneys, have stated that it is
remote the claim will be settled for $290,000. Tyler's attorneys indicated he would be willing to accept either cash of
$275,000 or shares of Nelson's closely-held common stock currently valued at $265,000. Nelson would prefer not to settle in
cash.
Nelson is suing Davis for $300.000 because Davis is in violation of a non-compete agreement he has with Nelson. Nelson is
certain he will win and so are his attorneys. In addition, Davis has privately admitted to Nelson could be right, but Davis
intends to fight it.
None of the above have been settled as of December 31, 2025. Prepare the necessary entry to record the liability and receivable, if
any, for the situations above. (Credit account titles ore automatically indented when the amount is entered. Do not indent manually. If no entry
is required, select "No Entry" for the account titles and enter O for the amounts. List debit entry before credit entry)
Account Titles and Explanation
Debit
Credit
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