Reference no: EM132738502

Question - JUST ANSWER AND BRIEF SOLUTION

Fall Corporation, in preparation of its December 31, 2018, 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 P350,000 and P60,000 have been filed against the company. It is the judgment of Fall's legal counsel that an unfavorable outcome is unlikely in the P60, 000 case but that an unfavorable verdict approximating P250, 000 will probably result in the P350, 000 case.

2. Fall Corporation owns a subsidiary in a foreign country that has a book value of P5,725,000 and an estimated fair value of $9,500,000. The foreign government has communicated to Fall 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, Fall expects to receive 40% of the fair value of its properties as final settlement.

3. Fall'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 2018 is considered one of the safest (luckiest) in the divisions' 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 P60, 000 to P700, 000), management is certain that next year the company will probably not be so fortunate. 

Instructions -

(a) Prepare the journal entries that should be recorded as of December 31, 2018 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.