Answered: amount of estimated liability to be…

Business

Accounting

amount of estimated liability to be recognized

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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During 2020, Lomi, Co.filed suit against Ocean, Inc seeking damages for patent infringement. At December 31, 2020. Lomi’s legal counsel believed that it was probable that Lomi would be successful against Ocean for an estimated amount of P 1,500,000. In March 2021, Lomi was awarded P 1,000,000 and received in full payment thereof. In Lomi’s 2020 financial statements issued February 2021, how should this award be reported? a. As a receivable and revenue of P 1,500,000b. As a receivable and revenue of P 1,000,000c. As a disclosure of a contingent asset of P 1,500,000d. As a disclosure of a contingent asset of P 1,000,000
A court case decided on December 2020 awarded damages against Talunan Corp. The judge has announced that the amount of damages will be set at a future date, expected to be in March 2021. Talunan Corp has received advice from its lawyers that the amount of the damages could be anything between P400,000 and P1,400,000. As of December 31, 2020, how much liability should be recognized in the balance sheet regarding this court case? P900,000 b. P1,400,000 c. P400,000 d. P0
A court case decided on December 2020 awarded damages against Poll Corp. The judge has announced that theamount of damages will be set at a future date, expected to be in March 2021. Poll Corp has received advice fromits lawyers that the amount of the damages could be anything between P400,000 and P1,400,000. As of December 31,2020, how much liability should be recognized in the balance sheet regarding this court case? a. P900,000 b. P1,400,000 c. P400,000 d. P0
In May 2019, Colt Company filed suit against Johnson Company seeking P1,900,000 damages for patent infringement. A court verdict in November 2019 awarded Colt Company P1,500,000 in damages, but Johnson Company's appeal is not expected to be decided before 2020. The legal counsel believed it is probable that Colt Company will be successful against Johnson Company for an estimated amount in the range between P800,000 and P1,100,000, with P1,000,000 considered the most likely amount. What amount should Colt Company record as income from the lawsuit for the December 31, 2019? year ended
During 2019, Maricar Company guaranteed a supplier’s P5,000,000 loan from a bank. On October 1, 2020. Maricar was notified that the supplier had defaulted on the loan and filed for bankruptcy protection. The counsel believes Maricar will probably have to pay between P2,500,000 and P4,500,000 under its guaranty. As a result of the supplier’s bankruptcy, Maricar entered into a contract in December 2020, to retool its machines so that Maricar could accept parts from other suppliers. Retooling costs are estimated to be P3,000,000. What amount should Maricar report as a liability in its December 31, 2020 balance sheet? Group of answer choices A.) 4,500,000 B.) 5,000,000 C.) 5,500,000 D. ) 2,500,000
Eastern Company provided the following information on December 31, 2022. In May 2022, Eastern Company became involved in litigation. In December 2022, the court assessed judgment for P1,600,000 against Eastern Company. The entity is appealing the amount of the judgment. The attorneys believed it is probable that the assessment can be reduced on appeal by 50%. The appeal is expected to take at least a year. In July 2022, Pasig City brought action against Eastern Company for polluting the Pasig River with its waste products. It is probable that Pasig City will be successful but the amount of damages the entity might have to pay should not exceed P1,500,000. Eastern Company signed as guarantor for a P1,000,000 loan by First Bank to Northern Company, a principal supplier to Eastern Company. At this time, there is a only a remote likelihood that Eastern Company will have to make payment on behalf of Northern Company. Eastern Company owned a manufacturing site that had now been discovered to…
Tyeso Company entered into a lawsuit on December 25, 2020 and recognized on the same date a provision of P2,000,000. On February 28, 2021, when the financial statements for the year ended December 31, 2020 had not yet been authorized for issue, the case was settled and the court decided the final total damages to paid by the entity at P3,000,000. In addition, the Company has a loan payable of P2,000,000 due on June 30, 2021. On January 1, 2021, before the authorization of the issuance of financial statements, the bank agreed to refinance the loan, extending the maturity to June 30, 2023. Also, another loan amounting to P7,000,000 due on December 1, 2021 was obtained by the Company from BDO. TYESO Company has the discretion to refinance or roll over the loan for at least twelve months from December 31, 2021. 1. Compute for the current liability to be presented in the financial position a. P12 million b. P10 million c. P5 million d. P4 million Answer: 2. Compute for…
On March 1, 2019, a suit was filed against Eloise Company for patent infringement. Eloise's legal counsel believed an unfavorable outcome is probable and estimated that the entity will have to pay between P850,000 and P900,000 in damages. However, Eloise's legal counsel is of the opinion that P600,000 is a better estimate than amount in the range. any other The situation was unchanged when December 31, 2019 financial statements were released on February 15,2020. What amount should be accrued as liability on December 31, 2019 in connection with this law suit?
Dinoco Petroleum faces three potential contingency situations, described below. Dinoco’s fiscal year ends December 31, 2021, and it issues its 2021 financial statements on March 15, 2022. Required: Determine the appropriate means of reporting each situation for the year ended December 31, 2021, and record any necessary entries. Explain your reasoning. 1. In the initial trial, Dinoco lost a $130 million lawsuit resulting from a dispute with a supplier. The case is under appeal. Although Dinoco is unable to predict the outcome, it does not expect the case to have a material adverse effect on the company. 2. In November 2020, the state of Texas filed suit against Dinoco, seeking civil penalties and injunctive relief for violations of environmental laws regulating hazardous waste. On January 12, 2022, Dinoco reached a settlement with state authorities. Based upon discussions with legal counsel, it is probable that Dinoco will require $150 million to cover the cost of violations. 3. Dinoco…
Beautiful Company is involved in litigation regarding a faulty product sold in a prior year during 2021. The company has consulted with its attorney and determined that it is possible that they may lose the case. The attorneys estimated that there is a 40% chance of losing. If this is the case, their attorney estimated that the amount of any payment would be P500,000.How much is the Provision to be reported at December 31, 2021?
During 2019, Analee Company filed suit against another entity seeking damages for patent infringement. On December 31, 2019, the legal counsel believed that it was probable that the entity would be successful against the other entity for an estimated amount of P1,500,000. On April 15, 2020, the entity was awarded P1,000,000 and received full payment thereof. The 2019 fınancial statements were issued on March 31, 2020. How should this award be reported in the 2019 financial statements? O As disclosure of contingent asset P1,000,000 As disclosure of contingent asset P1,500,000 O As receivable and revenue P1,000,000 O As receivable and deferred revenue P1,000,000
At December 31,2020, a firm is evaluating a contingent liability as part of their annual financial reporting. They consider the loss probable and expect to pay $400,000. One year later, the case is still on-going, and the firm expects that the loss is still probable and the most likely amount is $500,000. At December 31, 2021, the firm updates their estimate. The court case settles on May 31, 2022. The firm pays $425,000 to settle the case. What effect does the contingent liability have on net income in each year, respectively? O 2020: Reduce $400,000, 2021: No Effect, 2022: No Effect O 2020: Reduce $400,000, 2021: Reduce $100,000, 2022: Increase $25,000 O 2020: Reduce $400,000, 2021: Reduce $100,000, 2022: Increase $75,000 O 2020: No Effect, 2021: No Effect, 2022: No Effect O 2020: Reduce $400,000, 2021: Reduce $100,000, 2022: No Effect