Polska Corporation, in preparation of its December 31, 2014, financial statement
ID: 2451378 • Letter: P
Question
Polska Corporation, in preparation of its December 31, 2014, financial statements, is attempting to determine the proper accounting treatment for each of the following situations.
(a)
Prepare the journal entries that should be recorded as of December 31, 2014, 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. As a result of uninsured accidents during the year, personal injury suits for $374,400 and $67,300 have been filed against the company. It is the judgment of Polska’s legal counsel that an unfavorable outcome is unlikely in the $67,300 case but that an unfavorable verdict approximating $268,100 will probably result in the $374,400 case. 2. Polska Corporation owns a subsidiary in a foreign country that has a book value of $5,879,000 and an estimated fair value of $10,184,000. 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, Polska expects to receive 40% of the fair value 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 2014 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 $67,300 to $725,400), management is certain that next year the company will probably not be so fortunate.Explanation / Answer
Journal Entries:
1. Dec 31, 2014 P&L A/c Dr. 268,100
To Provision for Contingent Liability A/c Cr. 268,100
{ Being provision created for uncertain Future contingent liability }
2. Dec 31, 2014 P&L A/c Dr. 1,805,400
To provision for Loss of Subsidiary investment Cr. 1,805,400
{ Being provoision created for difference of Book value & 40% of Fair value}
Here provision is created to anticipate future expecting loss.
3. Dec 31, 2014 No Entry.
{ Being Provision amount cann't be assessed properly }