Four independent situations follow.

Situation 1: During 2014, Sugarpost Inc. became involved in a tax dispute with the CRA. Sugarpost’s lawyers have informed management that Sugarpost will likely lose this dispute. They also believe that Sugarpost will have to pay the CRA between $900,000 and $1.4 million. After the 2014 financial statements were issued, the case was settled with the CRA for $1.2 million.

Instructions

What amount, if any, should be reported as a liability for this contingency as at December 31, 2014, assuming that Sugarpost follows ASPE?

Situation 2: Toward the end of Su Li Corp.’s 2014 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. Su Li had spent $1.2 million in wages on this group of workers in 2014.

Instructions

Prepare the entry, if any, that Su Li Corp. should make at December 31, 2014. Briefly explain your answer.

Situation 3: On October 1, 2014, 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 $5 million. Jackhammer’s insurance policy of $9 million has a clause requiring a deductible of $500,000.

Instructions

(a) Assuming ASPE is followed, how should Jackhammer Chemical report this information in its financial statements at December 31, 2014?

(b) Briefly identify any differences if Jackhammer were to follow IFRS.

Situation 4: Etheridge Inc. had a manufacturing plant in a foreign country that was destroyed in a civil war. It is not certain who will compensate Etheridge for this destruction, but Etheridge has been assured by that country’s government officials that it will receive a definite amount for this plant. The compensation amount will be less than the plant’s fair value, but more than its carrying amount.

Instructions

How should the contingency be reported in the financial statements of Etheridge Inc. under ASPE?