Prepare summary of journal entries to recognize provision

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Reference no: EM132670091

Assignment: Smile Company provided the following information on December 31, 2017:

1. In May 2017, Smile Company became involved in litigation. In December 2017, the court assessed a judgement for 800,000 against Smile. The entity is appealing the amount of the judgement.

The attorneys believed it is probable that the assessment can be reduced on appeal by 50%. The appeal is expected to take at least a year.

2. A suit was filed on June 2017 for a personal injury amounting to 300,000. Smile company's legal counsel concluded that it is not probable that Smile will be responsible for damages and that 120,000 is the best estimate of the damages.

3. In July 2017, Pasig city brought action against Smile company for polluting the Pasig River with its waste products.

It is probable that Pasig city will be successful but the amount of damages the entity might have to pay should not exceed 750,000.

4. Smile company has signed as guarantor for a 500,000 loan by First bank to Norhern company, a principal supplier to Smile company. At this time, there is only a remote likelihood that Smile company will have to make payment on behalf of Northern company.

5. Smile Company has long owned a manufacturing site that has now been discovered to be contaminated with toxic waste. The entity has acknowledge its responsibility for contamination.

An initial clean up feasibility study has shown that it will cost at least 250,000 to clean up the toxic waste.

6. Smile company has been sued for patent infringement and lost the case. A preliminary judgement of 150,000 was issued and is under appeal. The entity's attorneys agree that it is probable that the entity will lose this appeal.

Required: Prepare a summary of journal entries to recognize any provision at the end of current year. Be able to explain the transaction which will not require any entry emphasizing the reason and accounting treatment.

Reference no: EM132670091

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