Reference no: EM133063722

Question - Red Corporation manufactures chemicals that are exported to other nations. On Dec. 20, 2021, one of the plant's storage tanks burst. Unfortunately, one of its workers was trapped in the accident and received terrible burns all over his body as a result. The worker sued Red Corp. for bodily injuries experienced as a result of the explosion and requested P3,000,000 in damages. Red Corp.'s lawyer predicts that the company would most likely lose the case and estimates that the company will have to pay P2,500,000.

On March 10, 2022, on the advice of his attorney, the wounded employee proposed an out-of-court settlement of P2,000,000. The offer was made on the same day, and Red Corp. accepted it on March 12, 2022, based on the advice of its legal counsel. On March 31, 2022, the 2021 financial statements were released. On Dec. 31, 2021, how much should Red Corp. record as a liability from the legal case?