Topic - Contingencies:

Unlimited Possibilities Ltd. (UPL) is finalizing the financial statements for 20X5. The companys managers are uncertain how each of the following events and situations should be reported:

1. UPL is the guarantor on a $10 million bank loan that was obtained by another company controlled by the same shareholders who control UPL. The amount of the guaranteed loan is a material amount for UPL.

2. UPL has a subsidiary in Japan. UPL has reached agreement to sell the Japanese subsidiary to a Taiwanese company, subject to approval by regulators in Japan. When the sale closes, UPL will realize a profit of $20 million as the purchase price is $20 million higher than the subsidiarys net book value. Approval is expected, but it will be at least six months before the regulators issue their final ruling.

3. An existing customer declared bankruptcy in February 20x6.

Required:

Discuss the appropriate reporting for each of these three items on UPLs 20X5 financial statements