The Springfield Clinic is owned and operated by ten local doctors as a partnership. Recently, a paralyzed patient sued the clinic for malpractice, for a total of $20 million. The clinic carries malpractice liability insurance in the amount of $10 million. There is no provision for the possible loss from this type of lawsuit in the partnership€™s financial statements. the condensed balance sheet for 2011 is as follows:

1. How should information about the lawsuit be disclosed in the December 31, 2011, financial statements of the partnership?

2. Assume that the clinic and its insurance company settle out of court by agreeing to pay a total of $10.1 million, of which $100,000 must be paid by the partnership. What effect will the payment have on the clinic€™s December 31, 2011, financial statements? Discuss the effect of the settlement on the Spring-field Clinic doctor€™s personal financialsituations.

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Springfield Clinic Condensed Balance Sheet December 31, 2011 Assets Current assets $246,000 750000 Property. plant, and equipment (net Total assets $996,000 Llabliitles and Partners Equity $180,000 675,000 Current liabilities Long-term debt Total liabilities Partners equity Total liabilities and partners equity $B55,000 141,000 $996,000