At the end of the year O'Toole General Hospital, which carries no medical malpractice insurance, had the following list of malpractice claims:
1. Mr. Seymour Green, a heart patient, filed a claim for $600,000. Based on Mr. Green's medical records, the hospital's attorneys are not confident of winning the case if it goes to trial. If settled out of court, the settlement could range from $300,000 to $400,000.
2. Ms. Les Monet filed a claim for $750,000. The hospital's attorneys are 95 percent confident that the hospital will win this claim if it goes to trial. The hospital is awaiting trial and will not settle the claim for any amount.
3. The hospital has 30 smaller claims outstanding with an average claim of $15,000. Based on past history, management has estimated that the hospital will lose 70 percent of the claims, with an average loss of 40 percent on the amount claimed.
4. Three additional claims, averaging $15,000 relating to incidents occurring before the fiscal year end, will probably be settled during the following year.
a. Consistent with GAAP, indicate the amount, if any, that the hospital should establish as a liability on its balance sheet for each of the malpractice claims.
b. Indicate any note disclosures the hospital should make in its financial statements for the malpractice claims.

  • CreatedAugust 13, 2014
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