Answered: amount of provision should Damn accrue

Business

Accounting

amount of provision should Damn accrue

SWFT Individual Income Taxes

43rd Edition

ISBN:9780357391365

Author:YOUNG

Publisher:YOUNG

Chapter4: Gross Income: Concepts And Inclusions

Section: Chapter Questions

Problem 35P

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Contingencies Fallon Company, a toy manufacturer that also operates several retail outlets, is preparing its December 31, 2019, financial statements. It has identified the following legal situations that may qualify as contingencies: A customer is suing the company for 800,000 in damages because her child was injured in November 2019 while riding an escalator that stopped suddenly in one of its stores. The child was hurt when he tripped and fell while walking down an escalator that was going up. Legal counsel feels that the child is partially at fault, but that it is probable that the lawsuit will be settled for between SO,000 and 100,000, with 80,000 being the most likely amount. Fallon has discovered that a skateboard it began manufacturing and selling in 2019 has defective bearings, sometimes causing a wheel to fall off. Fallon has issued a recall notice in newspapers and magazines in which it offers to replace the bearings. It estimates a cost of 200,000 for these repairs. No lawsuits have been filed for injury claims, although the company feels that there is a reasonable possibility that claims may total as high as 2 million. Fallon has an incinerator behind one of its retail outlets which is used to burn cardboard boxes received in shipments of inventory from suppliers. The state environmental protection agency filed suit against the company in August 2019 for air pollution. Fallon expects to stop using the incinerator and begin recycling. However, its lawyers believe that it is probable that a fine of between 40,000 and 60,000 will be levied against the company, although they cannot predict the exact amount. In early 2019, Fallon signed a contract with a computer vendor to install state of the art cash registers in all of its retail outlets. Because of the vendors inability to acquire sufficient cash registers, the vendor canceled the contract. Fallon has filed a breach of contract suit against the vendor, claiming 300,000 in damages. The companys lawyers expect that it will settle the suit out of court for 150,000. Required: Next Level For each situation, prepare the journal entry (if any) on December 31, 2019, to record the information for Fallon, and explain your reasoning. If no journal entry is recorded, explain how the information would be disclosed in Fallons 2019 annual report. How would your answers change if Fallon used IFRS?
On January 1, 2021, a Dune Corporation truck was in an accident with an auto driven by R. Bell. Dune received notice on January 12, 2021, of a lawsuit for $700,000 in damages for personal injuries suffered by Bell. Dune Corporation’s legal counsel believes it is probable that Bell will be awarded an estimated amount in the range between $200,000 and $500,000, Dune’s accounting year ends on December 31, and the 2020 financial statements were issued on March 31, 2021. What amount of provision should Dune accrue on December 31, 2020?
On November 5,2019, ABC Company was in an accident with an auto driven by Y. ABC Company received a notice on January 12, 2020 of a lawsuit for P 700,000 damages for a personal injuries suffered by Y. ABC's legal counsel believes it is probable that Y will be awarded an estimated amount in the range between P 200,000 and P 450,000 and that P 300,000 is the best estimate. ABC's accounting year ends on December 31 and the 2019 financial statements were issued on March 3, 2020.What amount of loss should ABC accrue at December 31,2019?
On November 5,2019, ABC Corporation’s truck was in an accident with an auto driven by Mikey. ABC received notice on January 12, 2020 of a lawsuit for 700,000 damages for personal injuries suffered by Mikey, ABC Corporation’s counsel believes it is probable that Mikey will be awarded an estimated amount in the range between 200,000 and 450,000 and that 300,000 is a better estimate of potential liability than any other amount.ABC’s accounting period ends on December 31 and the 2019 financial statements were issued on March 2, 2020. What amount of loss should ABC accrue on December 31, 2019?
On November 5, 2020, a Dunn Company truck was in an accident with an auto driven by Bell. The entity received notice on January 12, 2021 of a lawsuit for P700,000 damages for personal injuries suffered by Bell. The entity's counsel believed it is probable that Bell will be awarded an estimated amount in the range between P200,000 and P500,000. The possible outcomes are equally likely. The accounting year ends on December 31 and the 2020 financial statements were issued on March 31, 2021. What amount of provision should be accrued on December 31, 2020?
On December 13, 2019, ABC Company was in an accident with an automobile driven by DEF. ABC received notice on December 31,2019 of a lawsuit for P600,000 damages for personal injuries suffered by DEF. ABC's counsel believes it is probable that DEF will be awarded an estimated amount in the range between P300,000 and P600,000 and that P 450,000 is a best estimate of potential liability. ABC’s accounting year ends on December 31 and the 2019 financial statements were issued on March 2, 2020. On April 30,2020,before the financial statements were issued, ABC settled DEF for the amount of P 500,000.What amount of liability should ABC Company recognize at December 31, 2019? P 600,000 P 300,000 P 500,000 P 450,000
On November 5, 2019, a Muntinlupa Company truck was in an accident with an auto driven by Murcia. Muntinlupa received notice on January 15, 2020 of a lawsuit for P900,000 damages for personal injuries suffered by Murcia. Muntinlupa's counsel believed it is probable that Murcia will be awarded an estimated amount in the range between P500,000 and P800,000, and each amount in the range is as likely as any other. The 2019 fınancial statements were issued on March 31, 2020. WWhat amount of provision should Muntinlupa accrue on December 31, 2019? O 500,000 O 650,000 O 900,000
A truck owned and operated by Rasin Company was involved in an accident with an auto driven by Lakasei on December 10, 2020. Rasin Company received notice on December 25, 2020 of a lawsuit for P350,000 damages for a personal injury suffered by Lakasei. The legal counsel of the company believes that it is probable that Rasin will pay the damages ranging between P500,000 to P1,000,000. Each point within that range of amounts is considered as likely as any other point. The financial statements were authorized to be issued on March 1, 2021. How much provision should Rasin recognize on December 31, 2020?
Ön November 5, 2019, a Dunn Company truck was in an accident with an auto driven by Bell. Dunn received notice on January 15, 2020 of a lawsuit for P700,000 damages for personal injuries suffered by Bell. The entity's counsel believed it is probable that Bell will be awarded an estimated amount in the range between P200,000 and P450,000, and no amount is a better estimate of potential liability than any other amount because cach point in the range is as likely as any other. The 2019 financial statements were issued on March 1, 2020. What amount of loss should be accrued on December 31, 2019? CS ed wth Camd Y
Brady is hired in 2021 to be the accountant for Anderson Manufacturing, a private company. At the end of 2021, the balance of Accounts Receivable is $29,000. In the past, Anderson has used only the direct write-off method to account for bad debts. Based on a detailed analysis of amounts owed, Brady believes the best estimate of future bad debts is $9,000. If Anderson continues to use the direct write-off method to account for uncollectible accounts, what adjustment, if any, would Brady record at the end of 2021? What adjustment, if any, would Brady record if Anderson instead uses the allowance method to account for uncollectible accounts?
On December 13, 2019, TJH Company was in an accident with an automobile driven by DEF. TJH received notice on December 31,2019 of a lawsuit for P600,000 damages for personal injuries suffered by DEF. TJH's counsel believes it is probable that DEF will be awarded an estimated amount in the range between P300,000 and P600,000 and that P 450,000 is a best estimate of potential liability. TJH’s accounting year ends on December 31 and the 2019 financial statements were issued on March 2, 2020. On April 30,2020,before the financial statements were issued, TJH settled DEF for the amount of P 500,000.What amount of liability should TJH Company recognize at December 31, 2019?
Finley Roofing is involved with several situations that possibly involve contingencies. Each is described below. Finley's fiscal year ends December 31, and the 2023 financial statements are issued on March 20, 2024. 1. Finley is involved in a lawsuit resulting from a dispute with a customer. On January 25, 2023, judgment was rendered against Finley in the amount of $10 million plus interest, a total of $11 million. Finley plans to appeal the judgment, but does not expect the appeal to succeed. 2. At March 20, 2023, the EPA is in the process of investigating possible environmental violations at one of Finley's work sites, but has not proposed a deficiency assessment. Management feels an assessment is probable, and if an assessment is made an unfavorable settlement between $15 million to $23 million is probable. 3. Finley is the plaintiff in a $41 million lawsuit filed against AA Asphalt for damages due to lost profits from rejected contracts and for unpaid receivables. The case is in…