Reference no: EM132737340

Shine or Rain Corporation, a manufacturer of household paints, is preparing annual financial statements at December 31, 2020. Because of a recently proven health hazard in one of its paints, the government has clearly indicated its intention of having Shine or Rain Corporation recall all cans of this paint sold in the last six months. The management of Shine or Rain Corporation estimates that this recall would cost P800,000.

Problem 1: How would the company present this case in its December 31, 2020 financial statements?

1. No recognition
2. Operating expense of P800,000 and liability of P800,000
3. Note disclosure only
4. Appropriation of retained earnings of P800,000