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Three independent situations follow. Situation 1: During 2020, Sugarpost Inc. became involved in a tax dispute with the Canada Revenue Agency. Sugarpost's tax lawyers have told management that Sugarpost will likely lose this dispute. They also believe that Sugarpost will have to pay the Receiver General for Canada between $2,700,000 and $3.1 million. After the 2020 financial statements were issued, the case was settled with the Canada Revenue Agency for $2.9 million. What amount, if any, should be reported as a liability for this contingency as at December 31, 2020, assuming that Sugarpost follows ASPE? Liability to be reported $

Three independent situations follow. Situation 1: During 2020, Sugarpost Inc. became involved in a tax dispute with the Canada Revenue Agency. Sugarpost's tax lawyers have told management that Sugarpost will likely lose this dispute. They also believe that Sugarpost will have to pay the Receiver General for Canada between $2,700,000 and $3.1 million. After the 2020 financial statements were issued, the case was settled with the Canada Revenue Agency for $2.9 million. What amount, if any, should be reported as a liability for this contingency as at December 31, 2020, assuming that Sugarpost follows ASPE? Liability to be reported $

FINANCIAL ACCOUNTING
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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Three independent situations follow. Situation 1: During 2020, Sugarpost Inc. became involved in a tax dispute with the Canada Revenue Agency. Sugarpost's tax lawyers have told management that Sugarpost will likely lose this dispute. They also believe that Sugarpost will have to pay the Receiver General for Canada between $2,700,000 and $3.1 million. After the 2020 financial statements were issued, the case was settled with the Canada Revenue Agency for $2.9 million. What amount, if any, should be reported as a liability for this contingency as at December 31, 2020, assuming that Sugarpost follows ASPE? Liability to be reported $
Transcribed Image Text:Three independent situations follow. Situation 1: During 2020, Sugarpost Inc. became involved in a tax dispute with the Canada Revenue Agency. Sugarpost's tax lawyers have told management that Sugarpost will likely lose this dispute. They also believe that Sugarpost will have to pay the Receiver General for Canada between $2,700,000 and $3.1 million. After the 2020 financial statements were issued, the case was settled with the Canada Revenue Agency for $2.9 million. What amount, if any, should be reported as a liability for this contingency as at December 31, 2020, assuming that Sugarpost follows ASPE? Liability to be reported $
Situation 2: Toward the end of Su Li Corp.'s 2020 fiscal year, employer-union talks broke off, with the wage rates for the upcoming two years still unresolved. Just before the new year, however, a contract was signed that gave employees a 5% increase in their hourly wage effective January 1, 2021. Su Li had spent $2.9 million in wages on this group of workers in 2020. Prepare the entry, if any, that Su Li Corp. should make at December 31, 2020. (Credit account titles are automatically indented when the amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter O for the amounts.) Date Account Titles and Explanation Dec. 31, 2020 Show Transcribed Text Ű (a) Ĵ Liability to be reported under ASPE $ Debit Situation 3: On October 1, 2020, the provincial environment ministry identified Jackhammer Chemical Inc. as a potentially responsible party in a chemical spill. Jackhammer's management, along with its legal counsel, have concluded that it is likely that Jackhammer will be found responsible for damages, and a reasonable estimate of these damages is $4 million. Jackhammer's insurance policy of $8 million has a clause requiring a deductible of $400,000. Credit Assuming ASPE is followed, how should Jackhammer Chemical report this information in its financial statements at December 31, 2020?
Transcribed Image Text:Situation 2: Toward the end of Su Li Corp.'s 2020 fiscal year, employer-union talks broke off, with the wage rates for the upcoming two years still unresolved. Just before the new year, however, a contract was signed that gave employees a 5% increase in their hourly wage effective January 1, 2021. Su Li had spent $2.9 million in wages on this group of workers in 2020. Prepare the entry, if any, that Su Li Corp. should make at December 31, 2020. (Credit account titles are automatically indented when the amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter O for the amounts.) Date Account Titles and Explanation Dec. 31, 2020 Show Transcribed Text Ű (a) Ĵ Liability to be reported under ASPE $ Debit Situation 3: On October 1, 2020, the provincial environment ministry identified Jackhammer Chemical Inc. as a potentially responsible party in a chemical spill. Jackhammer's management, along with its legal counsel, have concluded that it is likely that Jackhammer will be found responsible for damages, and a reasonable estimate of these damages is $4 million. Jackhammer's insurance policy of $8 million has a clause requiring a deductible of $400,000. Credit Assuming ASPE is followed, how should Jackhammer Chemical report this information in its financial statements at December 31, 2020?
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