Carla Corporation, in preparation of its December 31, 2017, financial statements
ID: 2332212 • Letter: C
Question
Carla Corporation, in preparation of its December 31, 2017, 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 $373,500 and $60,400 have been filed against the company. It is the judgment of Carla’s legal counsel that an unfavorable outcome is unlikely in the $60,400 case but that an unfavorable verdict approximating $256,700 will probably result in the $373,500 case. 2. Carla owns a subsidiary in a foreign country that has a book value of $5,243,000 and an estimated fair value of $8,948,800. The foreign government has communicated to Carla 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, Carla expects to receive 50% of the fair value of its properties as final settlement. 3. Carla’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 2017 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 $60,400 to $714,600), management is certain that next year the company will probably not be so fortunate. (a) Prepare the journal entries that should be recorded as of December 31, 2017, to recognize each of the situations above. (If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts. Credit account titles are automatically indented when amount is entered. Do not indent manually.) No.
Date Account Titles and Explanation Debit Credit
1. December 31, 2017
2. December 31, 2017
3. December 31, 2017
Explanation / Answer
Date Greneral Journal Debit Credit Dec 31 2017 Loss from uninsured accident 256,700 Contingent Liability for uninsured accident 256,700 (to record loss from accident) Dec 31 2017 Loss from expropriation 768600 Allowance for expropriation 768600 ($5,243,000-(50% X $8,948,800) Dec 31 2017 No entry - No entry -