Problem 4-9
Problem 4-9
Problem 4-9
Baron Company is involved with several situations about contingencies. The fiscal year
ends December 31, 2020 and
financial statements are issued on March 1, 2021.
On March 1, 2021, the city government is in the process of investigating possible
chemical leaks at Baron s facilities but has not proposed a deficiency assessment.
Management feels an assessment is reasonably possible and if an assessment is made
an unfavorable settlement of up to P4,000,000 is reasonably possible.
Baron is the plaintiff in a P3,000,000 lawsuit filed against Faye Company for damages
due to lost profit from rejected contracts and for unpaid receivables.
The case is in final appeal and legal counsel advised that it is probable that Baron will
prevail and be awarded P2,500,000
In July 2020, the provincial government filed suit against Baron seeking civil penalties
and injunctive relief for violation of environmental law regulating hazardous waste. On
February 15, 2021, Baron reached a settlement with state authorities.
Based upon discussions with legal counsel, Baron feels it is probable that P2,000,000
will be required to cover the cost of violation.
Baron believed that the ultimate settlement of this claim will not have a material adverse
effect on the entity. Baron is involved in a lawsuit resulting from a dispute with a
customer. On January 5, 2021, judgment was rendered against Baron in the amount of
P1,500,000 plus interest of P300,000.
Baron plans to appeal the judgment and is unable to predict its outcome though it is not
expected to have a material adverse effect on the entity.
Required:
Required:
Compute the total amount that should be included in restructuring provision.
Western offers a one-year warranty against manufacturer's defects for all its
products. Industries experience indicates that warranty costs will approximate 2%
of credit sales.
In November 2020, the City of Manila filed suit against Western asking civil
penalties and injunctive relief for violations of clean water laws.
Western is the plaintiff in a P4.000.000 lawsuit filed against a customer for costs
and lost profit from contracts rejected in 2020.
The lawsuit is in final appeal and attorneys advised that it is probable that
Western will be awarded P3,000,000
Required: Prepare the appropriate journal entries that should recorded as a result of
each of these contingencies. If no journal entry is indicated, state the reason why.