HELP IS SO MUCH APPRECIATED

You are finalizing the year-end financial statements for a public company and have come across the following situations.

Situation 1 a former employee is suing you for $500,000. Legal counsel is of the opinion that is more likely than not that you will end up having to settle anywhere between $150,000 and $300,000, with each amount in the range equally likely.

Situation 2 you are offering a warranty on a new product and have not yet accrued a warranty provision. Based on industry comparables, you estimate that the probability of defects per unit sold over the three-year warranty period are as follows:

Probability	#defects
70%	0
15%	1
10%	2
5%	3

Each defect will cost on average $150 to fix. A total of 3,000 units of the new product was sold during the past year.

Situation 3 a customer slipped on a floor that had just been washed and seriously injured himself. The janitor did not put up the yellow warning sign that the floor was slippery and the whole event was caught on tape by the security camera. The customer is suing for $400,000. Legal counsel believes that the probability and amount of settlement is as follows:

Probability	payout
20%	$0
30%	$100,000
25%	$175,000
25%	$350,000

Required

For each of the situations, estimate the provision that needs to be accrued, if any. Also explain using the decision chart for provisions how you arrive at the conclusion that a provision needs to be accrued.

For each situation, use the following table to analyze the situation.

Present obligation as a result of a past event
Probable outflow
Measurable?
conclusion