Bourne Company provided the following selected transactions related to contingencies. The fiscal year ende on December 31, 2020 and financial statements are issued on March 31, 2021. Bourne is involved in a lawsuit resulting from a dispute with a customer over a 2020 transaction. On December 31, 2020, attorneys advised that it was probable that Bourne would lose P3,000,000 in an unfavorable outcome. On February 15, 2021, judgment was rendered against Bourne in the amount f P4,000,000 plus interest P500,000. Bourne does not plan to appeal the judgment. Since August 2020, Bourne has been involved in labor dispute. Negotiations between the entity and the union have not produced a settlement. Since January 2020, strikes have been ongoing at these facilities. It is virtually certain that material costs will be incurred but the amount of resultant costs cannot be adequately predicted. Bourne is the defendant in a lawsuit filed in January 2021 in which the plaintiff seeks P5,000,000 as an adjustment to the purchase price.related to the sale of Bourne's hardwood division in 2020. The lawsuit alleges that Bourne misrepresented the division's assets and liabilities. Legal counsel advised that it is reasonably possible that Bourne could lose P2,000,000 but that it is extremely unlikely it could lose the P5,000,000 asked for. On March 1, 2021, the provincial government is in the process of investigating the possibility of environmental violation by Bourne but has not proposed a penalty assessment, Management feels an assessment is reasonably possible and if an assessment is made, a settlement of up to P4,000,000 is probable. Required: Prepare journal entries that should be recorded as a result of the contingencies.
Bourne Company provided the following selected transactions related to contingencies. The fiscal year ende on December 31, 2020 and financial statements are issued on March 31, 2021. Bourne is involved in a lawsuit resulting from a dispute with a customer over a 2020 transaction. On December 31, 2020, attorneys advised that it was probable that Bourne would lose P3,000,000 in an unfavorable outcome. On February 15, 2021, judgment was rendered against Bourne in the amount f P4,000,000 plus interest P500,000. Bourne does not plan to appeal the judgment. Since August 2020, Bourne has been involved in labor dispute. Negotiations between the entity and the union have not produced a settlement. Since January 2020, strikes have been ongoing at these facilities. It is virtually certain that material costs will be incurred but the amount of resultant costs cannot be adequately predicted. Bourne is the defendant in a lawsuit filed in January 2021 in which the plaintiff seeks P5,000,000 as an adjustment to the purchase price.related to the sale of Bourne's hardwood division in 2020. The lawsuit alleges that Bourne misrepresented the division's assets and liabilities. Legal counsel advised that it is reasonably possible that Bourne could lose P2,000,000 but that it is extremely unlikely it could lose the P5,000,000 asked for. On March 1, 2021, the provincial government is in the process of investigating the possibility of environmental violation by Bourne but has not proposed a penalty assessment, Management feels an assessment is reasonably possible and if an assessment is made, a settlement of up to P4,000,000 is probable. Required: Prepare journal entries that should be recorded as a result of the contingencies.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:Bourne Company provided the following selected
transactions related to contingencies. The fiscal year ends
on December 31, 2020 and financial statements are issued
on March 31, 2021.
Bourne is involved in a lawsuit resulting from a dispute
with a customer over a 2020 transaction. On December
31, 2020, attorneys advised that it was probable that
Bourne would lose P3,000,000 in an unfavorable outcome.
On February 15, 2021, judgment was rendered against
Bourne in the amount f P4,000,000 plus interest P500,000.
Bourne does not plan to appeal the judgment.
Since August 2020, Bourne has been involved in labor
dispute. Negotiations between the entity and the union
have not produced a settlement. Since January 2020.
strikes have been ongoing at these facilities.
It is virtually certain that material costs will be incurred
but the amount of resultant costs cannot be adequately
predicted.
Bourne is the defendant in a lawsuit filed in January 2021
in which the plaintiff seeks P5,000,000 as an adjustment
to the purchase price. related to the sale of Bourne's
hardwood division in 2020.
The lawsuit alleges that Bourne misrepresented the
division's assets and liabilities.
Legal counsel advised that it is reasonably possible that
Bourne could lose P2,000,000 but that it is extremely
unlikely it could lose the P5,000,000 asked for.
On March 1, 2021, the provincial government is in the
process of investigating the possibility of environmental
violation by Bourne but has not proposed a penalty
assessment.
Management feels an assessment is reasonably possible
and if an assessment is made, a settlement of up to
P4,000,000 is probable.
Required:
Prepare journal entries that should be recorded as a result
of the contingencies.
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