Reference no: EM133130061

Question - Grapes Company provided the following selected transactions related to contingencies. The fiscal year ends on December 31, 2023. Financial statements were issued on April 1, 2024.

a. In December 2023, Grapes became aware of an engineering flaw in a product that poses a potential risk of injury. As a result, a product recall appears inevitable. This move would likely cost the entity P2,800,000.

b. In November 2023, the City of Manila filed suit against the entity. Grapes government is asking civil penalties and injunctive relief for violations of clean water laws. Grapes reached a settlement with the city Government to pay P3,200,000 in penalties on February 15, 2024.

c. Grapes is the plaintiff in a P4,000,000 lawsuit filed against a customer for costs and lost profit from contract rejected in 2023. The attorney advised that it is probable that Grapes will be awarded P3,000,000. On March 20, 2024, Grapes won the case and received P3,500,000.

Required -

a. What amount should be reported as accrued liability on December 31, 2023?

b. What amount should be reported as gain in 2023 as a result of the contingency?