This chapter briefly outlined the legal history of the case between Pennzoil and Texaco. Texaco was ordered to pay $10.5 billion to Pennzoil in 1985. Subsequent appeals in 1986 and 1987 affirmed the judgment against Texaco. The two companies agreed in late 1987 to a settlement of $3 billion, and in 1988 Texaco paid Pennzoil.
Instructions:
1. In 1984, when the lawsuit was initially filed, how should Texaco have disclosed the event? If a journal entry is required, prepare it.
2. In 1986, following the initial jury award and Texaco’s failure to have the judgment reversed on appeal, how should Texaco have disclosed the event? If a journal entry is required, prepare it.
3. In 1987, following the $3 billion agreement between Texaco and Pennzoil, how should Texaco have disclosed the event? If a journal entry is required, prepare it.
4. Prepare the journal entry to record Texaco’s settlement in 1988.
5. How should Pennzoil have disclosed this event during the years 1984 through 1987?