How should the liability be accounted for in the financial

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Reference no: EM132826256

Sarzuela Corp is a guarantor of a P1,500,000 notes payable of Ramos, Inc to BPI.

During the year, Ramos Inc was unable to operate for four months due to an ongoing pandemic
As of December 31, 2020, Sarzuela's management deemed that it is reasonably possible that Ramos will not be able to pay the principal amount of the loan.
On january 26, 2021, Ramos declared bankrupcy, five days before the Board of Directors of Ramos approved the issuance of its financial statements.

Problem 1: Sarzuela's financial statements were released for in the financial statements?

Problem 2: How should the liability be accounted for in the financial statements?

a. Recognize a 1,500,000 provision in the statement of comprehensive income
b. Disclosure of a contigent liability

Reference no: EM132826256

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