In the same year, the entity is a defendant in a lawsuit disputing the validity of copyright held by the entity. On December 31, 2019 , the entity determined that the plaintiff would probably be a successful against the entity for an estimated amount of P2,000,000. Appropriately, a P2,000,000 loss was accrued by a charge to income for the current year. On December 31, 2019, the entity and plaintiff agreed to a settlement providing for cash payment of P1,250,000 by the entity and transfer of the copyright to plaintiff. The carrying amount of the copyright was P250,000. What should be the effect of the settlement of the copyright case on Davao Company’s income before tax in 2020?
In the same year, the entity is a defendant in a lawsuit disputing the validity of copyright held by the entity. On December 31, 2019 , the entity determined that the plaintiff would probably be a successful against the entity for an estimated amount of P2,000,000. Appropriately, a P2,000,000 loss was accrued by a charge to income for the current year. On December 31, 2019, the entity and plaintiff agreed to a settlement providing for cash payment of P1,250,000 by the entity and transfer of the copyright to plaintiff. The carrying amount of the copyright was P250,000.
What should be the effect of the settlement of the copyright case on Davao Company’s income before tax in 2020?
300,000 increase
750,000 decrease
250,000 decrease
750,000 increase
500,000 increase
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