Answer:
Explanation: Balance sheet as at December 31
Provision should be made
1. December 31 - Dr Legal fine $3,000,000
Cr legal liability $3,000,000
February 12 Dr Legal fine $12,200,000
Cr legal liability $ 12,200,000
a)Payment of fine was probable ,It can be measured reliably and an outflow of economic benefit will occur
b) An adjusting entry is required as it evident on a case that was already existing as at the year end.
2)A disclosure should be made in the financial statement .Even though it is material , but the effect can not be reasonably estimated . (Contingent liability )
3) A disclosure should be made in the financial statement stating the $5 million likely fine as the outcome is just reasonable but not probable , even though was estimated (contingent liability)
4) The assessment is only reasonable but not probable , it should be disclosed in financial the financial statements
