Brite Corp. had the following liabilities at December 31, 2006:

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Accounts payable

$55,000

Unsecured notes, 8%, due 7/1/07

400,000

Accrued expenses

35,000

Contingent liability

450,000

Deferred income tax liability

25,000

Senior bonds, 7%, due 3/31/07

1,000,000

The contingent liability is an accrual for possible losses on a $1,000,000 lawsuit filed against Brite. Brite’s legal counsel expects the suit to be settled in 2008, and has estimated that Brite will be liable for damages in the range of $450,000 to $750,000.

The deferred income tax liability is not related to an asset for financial reporting and is expected to reverse in 2008.

What amount should Brite report in its December 31, 2006 balance sheet for current liabilities?

  1. $ 515,000
  2. $ 940,000
  3. $1,490,000
  4. $1,515,000