Question

Grim Corporation operates a plant in a foreign country. It is probable that the plant will be expropriated. However, the foreign government has indicated that Grim will receive a definite amount of compensation for the plant. The amount of compensation is less than the fair market value but exceeds the carrying amount of the plant. The contingency should be reported in

Answer 1

In the footnotes to the financial statements.

Step-by-step explanation:

This "problem" that Grim Corporation is facing will result in a gain, but since this is not an operational gain, and it is also not intentional, not wanted nor expected, it must be recorded as a contingency gain = compensation amount - carrying value.

Contingency gains or losses are included in the footnotes of financial statements until they are realized, because the conservatism principle states that gains should only be recorded when the earning process is realized. Only after they are realized they can be included in the financial statements.

Answer 2

C. In the notes to the financial statements.

Step-by-step explanation:

Based on the scenario being described within the question it can be said that the contingency should be reported in the notes to the financial statements. This is because this is a gain contingency which is contingent on receipt of the compensation. Therefore since gain contingencies are only reported in the noted and never actually recognized in the final statements then the answer to this question is C.