INTERMEDIATE ACCOUNTING 2

1) Gladness Co., guaranteed a loan of P400,000 granted to Timothy C. At the date when the directors approved the financial statements of Timothy, there is no reason to believe that the guarantee will be invoked.

QUESTION:

Assuming that the amount of the guarantee is a material amount forGladness Co., how much shall be the provision?

2) Milder Company has guaranteed a loan of P300,000 granted to Miller Company. After the balance sheet date of Milder Company but before the directors approved the financial statements, Milder Company receives notice that Miller Company is in liquidation and the creditor of Miller will invoke the guarantee

QUESTION:

How much shall be the provision for liability?