San Diego State University Lump Sum Settlement Payment Accounting Question
Question Description
On a stormy afternoon a year ago, Jeff Cooley left work early to attend his parents’ 60th wedding anniversary. Thirty minutes later, a careening truck slammed his SUV on the freeway causing Jeff to spend two months in a coma. Now he can’t hold a job or make everyday decisions. He is in need of constant care. Last week, Jeff won an out-of-court settlement from the truck driver’s company. He was awarded a lump-sum settlement payment of $2,330,715 in addition to medical costs and attorney fee. At the time of the accident, Jeff was president of his family’s business and earned approximately $200,000 per year. He had anticipated working 25 more years before retirement.
Jeff’s sister, Clara, an acquaintance of yours from high school, has asked you to explain to her how the attorneys came up with the settlement amount. “They said it was based on his lost future income and a 7% rate of some kind,” she explained. “But it was all ‘legal-speak’ to me.”
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