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4. East Company has several contingent liabilities at December 31, 2008. The auditor obtained the following brief description of each liability: In May 2008, East
4. East Company has several contingent liabilities at December 31, 2008. The auditor obtained the following brief description of each liability: In May 2008, East became involved in litigation. In December 2008, the court assessed a judgment for P1,600,000 against East. East is appealing the amount of the judgment. lts attorneys believe it is probable that they can reduce the assessment on appeal by 50%. The appeal is expected to take at least at year. In July 2008, Davao City brought action against East for polluting the Davao River with its waste products. It is probable that Davao City will be successful but the amount of damages East might have to pay should not exceed P1,500,000. East has signed as guarantor for a P1,000,000 loan by First Bank to Northern Company, a principal supplier to East. At this time, there is only a remote likelihood that East will have to make payment on behalf of Northern Company. How much should be accrued as provision on December 31, 2008? (a) P1,600,000 (b) P1,500,000 (c) P3,100,000 (d) P2,300,000
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