THINGS YOU MUST NOTICE:

1. Answer all the CASE using Microsoft Excel only

2. Use Font Type Calibri and Font Size 11

CASE 1. Polska SA, in preparation of its December 31, 2019, financial statements, is attempting to determine the
proper accounting treatment for each of the following situations.
1. As a result of uninsured accidents during the year, personal injury suits for €350,000 and €60,000 have been
filed against the company. It is the judgment of Polska's legal counsel that an unfavorable outcome is unlikely
in the €60,000 case but that an unfavorable verdict approximating €250,000 will probably result in the
€350,000 case.
2. Polska Corporation owns a subsidiary in a foreign country that has a book value of €5,725,000 and an
estimated fair value of €9,500,000. The foreign government has communicated to Polska its intention to
expropriate the assets and business of all foreign investors. On the basis of settlements other firms have
received from this same country, it is virtually certain that Polska will receive 40% of the fair value of its
properties as final settlement.
3. Polska's chemical product division consisting of five plants is uninsurable because of the special risk of injury
to employees and losses due to fire and explosion. The year 2019 is considered one of the safest (luckiest) in
the division's history because no loss due to injury or casualty was suffered. Having suffered an average of
three casualties a year during the rest of the past decade (ranging from €60,000 to €700,000), management
is certain that next year the company will probably not be so fortunate.
4. Polska operates profitably from a factory it has leased. During 2019, Polska decides to relocate these
operations to a new factory. The lease of the old factory continues for the next 5 years. The lease cannot be
cancelled and the factory cannot be subleased. Polska determines that the cost to settle the old lease is
€950,000.
5. Litigation is being pursued for the recovery of €1,300,000 consulting fees on a failed project. The directors
believe it is more likely than not that their claim will be successful.

Instructions
a. Prepare the journal entries that should be recorded as of December 31, 2019, to recognize each of the
situations above (15%)
b. Indicate what should be reported relative to each situation in the financial statements and accompanying
notes. Explain why (10%)
CASE 2. Good-Deal Auto developed a new sales gimmick to help sell its inventory of new automobiles. Because
many new car buyers need financing, Good-Deal offered a low down payment and low car payments for the first
year after purchase. It believes that this promotion will bring in some new buyers.
On January 1, 2019, a customer purchased a new €33,000 automobile, making a down payment of €1,000. The
customer signed a note indicating that the annual rate of interest would be 8% and that quarterly payments would
be made over 3 years. For the first year, Good-Deal required a €400 quarterly payment to be made on April 1, July
1, October 1, and January 1, 2020. After this one-year period, the customer was required to make regular quarterly
payments that would pay off the loan as of January 1, 2022.
Instructions
a. Prepare a note amortization schedule for the first year (5%)
b. Indicate the amount the customer owes on the contract at the end of the first year (5%)
c. Compute the amount of the new quarterly payments (5%)
d. Prepare a note amortization schedule for these new payments for the next 2 years (5%)
e. What do you think of the new sales promotion used by Good-Deal (5%)