During 2021, Odyssey Company is the defendant in a patent infringement lawsuit. The entity's lawyers believed there is a 30% chance that the court will dismiss the case and the entity will incur no outflow of economic benefits. However, if the court rules in favor of the claimant, the lawyers believed that there is a 20% chance that the entity will be required to pay damages of P200,000 and an 80% chance that the entity will be required to pay damages of P100,000. Other outcomes are unlikely. The court is expected to rule in late December 2022. There is no indication that the claimant will settle out of court. A 7% risk adjustment factor to the probability-weighted expected cash flows is considered appropriate to reflect the uncertainties in the cash flow estimates. An appropriate discount rate is 5% per year. The present value of 1 at 5% for one period is 0.95. 1. What amount should be recognized as undiscounted cash flows for the provision?. a. 200,000 b. 100,000 c. 150,000 d. 89,880 2. What amount should be reported as provision for lawsuit on December 31, 2021? a. 95,000 b. 79,800 c. 53,200 d. 85,386

During 2021, Odyssey Company is the defendant in a patent infringement lawsuit. The entity's lawyers believed there is a 30% chance that the court will dismiss the case and the entity will incur no outflow of economic benefits. However, if the court rules in favor of the claimant, the lawyers believed that there is a 20% chance that the entity will be required to pay damages of P200,000 and an 80% chance that the entity will be required to pay damages of P100,000. Other outcomes are unlikely. The court is expected to rule in late December 2022. There is no indication that the claimant will settle out of court. A 7% risk adjustment factor to the probability-weighted expected cash flows is considered appropriate to reflect the uncertainties in the cash flow estimates. An appropriate discount rate is 5% per year. The present value of 1 at 5% for one period is 0.95. 1. What amount should be recognized as undiscounted cash flows for the provision?. a. 200,000 b. 100,000 c. 150,000 d. 89,880 2. What amount should be reported as provision for lawsuit on December 31, 2021? a. 95,000 b. 79,800 c. 53,200 d. 85,386

Intermediate Accounting: Reporting And Analysis

3rd Edition

ISBN:9781337788281

Author:James M. Wahlen, Jefferson P. Jones, Donald Pagach

Publisher:James M. Wahlen, Jefferson P. Jones, Donald Pagach

Chapter17: Advanced Issues In Revenue Recognition

Section: Chapter Questions

Problem 11E

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