In late September 20X6, Boothe Ltd. established a provision of $500,000 for a legal matter. The company expects the amount will be paid in late September 20X8. Timing can be estimated with certainty.

Required:
1. Why is discounting required?
2. Calculate the present value of the provision, using an interest rate of 7%.
3. Explain the factors that would be considered in determining the 7% discount rate.
4. Prepare a table that shows the balance of the provision and interest expense over the life of the liability.
5. Provide all entries for the provision for 20X6 through 20X8. Record adjusting entries at the end of the fiscal year and on the anniversary date of the provision. The estimated amount was paid to the plaintiff on 30 September 20X8.
6. Show the provision as it would be included on the statement of financial position at 31 December 20X6 and 20X7.
7. Explain how the accounting for this provision would change if the amounts and timing of cash outflows were highly uncertain.