Reference no: EM132573275
Question - Polska SA, in preparation of its December 31, 2019, financial statements, is attempting to determine the proper accounting treatment for each of the following situations.
1. As a result of uninsured accidents during the year, personal injury suits for €350,000 and €60,000 have been filed against the company. It is the judgment of Polska's legal counsel that an unfavorable outcome is unlikely in the €60,000 case but that an unfavorable verdict approximating €250,000 will probably result in the €350,000 case.
2. Polska Corporation owns a subsidiary in a foreign countrythat has a book value of €5,725,000 and an estimated fair value of €9,500,000. The foreign government has communicated to Polska its intention to expropriate the assets and business of all foreign investors. On the basis of settlements other firms have received from this same country, it is virtually certain that Polska will receive 40% of the fairvalue of its properties as final settlement.
3. Polska's chemical product division consisting of five plants is uninsurable because of the special risk of injury to employees and losses due to fire and explosion. The year 2019 is considered one of the safest (luckiest) in the division's history because no loss due to injury or casualty was suffered. Having suffered an average of three casualties a year during the rest of the past decade [ranging from €60,000 to €700,000], management is certain that next year the company will probably not be so fortunate.
4. Polska operates profitably from a factory it has leased. During 2019, Polska decides to relocate these operations to a new factory. The lease of the old factory continues for the next 5 years. The lease cannot be cancelled and the factory cannot be subleased. Polska determines that the cost to settle the old lease is €950,000.
5. Litigation is being pursued for the recovery of €1,300,000 consulting fees on a failed project. The directors believe it is more likely than not that their claim will be successful.
Required -
a. Prepare the journal entries that should be recorded as of December 31, 2019, to recognize each of the situations above.
b. Indicate what should be reported relative to each situation in the financial statements and accompanying notes. Explain why.
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