Question

Prepare the December 31 entry assuming it is probable that Scorcese will be liable for $900,000 as a result of this suit. (If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts. Credit account titles are automatically indented when amount is entered. Do not indent manually.)

Answer 1

Answer:

Debit legal expense/penalties (p/l)  $900,000

Credit Provisions (B/s)                      $900,000

Explanation:

According to IAS 37 Provisions, contingent liabilities and contingent assets, a provision is to be recorded where there is a present obligation as a result of a past event and the outflow of economic benefits to satisfy the obligation is probable.

Hence if it is probable that Scorcese will be liable for $900,000 as a result of this suit, a provision is needed and will be recorded by;

Debit legal expense/penalties (p/l)  $900,000

Credit Provisions (B/s)                      $900,000