Problem 4-6 (IAA)Baron Company is involved with several situations aboutcontingencies. The fiscal year ends December 31, 2022 andthe financial statements are issued on March 31, 2023.On March 1, 2023, the city government is in the process ofinvestigating possible chemical leaks at Baron Company'sfacilities but has not proposed a deficiency assessment.Management believed an assessment is reasonablypossible and if an assessment is made an unfavorablesettlement of up to P4,000,000 is reasonably possible.Baron Company is the plaintiff in a P3,000,000 lawsuitfiled against Faye Company for damages due to lost profitfrom rejected contracts and for unpaid accounts receivable.The case is in final appeal and legal counsel advised that itis probable that Baron Company will prevail and beawarded P2,500,000.In July 2022, the provincial government filed suit againstBaron Company seeking civil penalties and injunctiverelief for violation of environmental law regulatinghazardous waste. On February 15, 2023, Baron Companyreached a settlement with state authorities.Based upon discussions with legal counsel, BaronCompany believed it is probable that P2,000,000 will berequired to cover the cost of violation.Baron Company believed that the ultimate settlementof this claim will not have a material adverse effect.Baron Company was involved in a lawsuit resultingfrom a dispute with a customer.On January 5, 2023, judgment was rendered againstBaron Company in the amount of P1,500,000 plusinterest of P300,000.Baron Company planned to appeal the judgment butwas unable to predict its outcome though it is notexpected to have a material adverse effect on the entity.Required:Prepare any necessary journal entries to recognize thesituations involving contingencies.117

Contingent Liability A contingent liability is a possible obligation that could or could not be…

Baron Company was unable to predict its outcome though it is expected to have a material adverse effect on the entity. Required: Prepare any necessary journal entries to recognize the situations involving contingencies.

Baron Company was unable to predict its outcome though it is expected to have a material adverse effect on the entity. Required: Prepare any necessary journal entries to recognize the situations involving contingencies.

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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