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. What amount of provision should Muntinlupa accrue on December 31, 2019?

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. What amount of provision should Muntinlupa accrue on December 31, 2019?

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

Chapter9: Current Liabilities And Contingent Obligations

Section: Chapter Questions

Problem 4C: Pending Damage Suit Disclosure On December 15, 2019, a truck driver for Cork Transfer Company...

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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?
Pending Damage Suit Disclosure On December 15, 2019, a truck driver for Cork Transfer Company negligently rounded a curve that was also a bridge covering several local merchant shops. The truck jumped the guardrail and fell 30 feet onto one of the shops, causing highly flammable chemicals in the truck to explode. Although by February 22, 2020 (the date on which Corks financial statements for 2019 are issued), no claims had been filed against Cork, the companys legal counsel believes it is probable that some will be filed in the future. However, counsel does not believe it can reasonably estimate the amount of these potential claims. Required: Explain the accounting treatment, if any, Cork should give the contingent loss occurring from the wreck in the December 31, 2019, financial statements.
Trip Garage, Inc. (459 Ellis Avenue, Harrisburg, PA 17111), is an accrual basis taxpayer that repairs automobiles. In late December 2019, the company repaired Samuel Mosleys car and charged him 1,000. Samuel did not think the problem had been fixed and refused to pay; thus, Trip refused to release the automobile. In early January 2020, Trip made a few adjustments and convinced Samuel that the automobile was working properly. At that time, Samuel agreed to pay only 900 because he did not have the use of the car for a week. Trip said fine, accepted the 900, and released the automobile to Samuel. An IRS agent thinks Trip, as an accrual basis taxpayer, should report 1,000 of income in 2019, when the work was done, and then deduct a 100 loss in 2020. Prepare a memo to Susan Apple, the treasurer of Trip, with the recommended treatment for the disputed income.
Duck, an accrual basis corporation, sponsored a rock concert on December 29, 2019. Gross receipts were 300,000. The following expenses were incurred and paid as indicated: Because the coliseum was not scheduled to be used again until January 15, the company with which Duck had contracted did not perform the cleanup until January 810, 2020. a. Calculate Ducks net income from the concert for tax purposes for 2019. b. Using the present value tables in Appendix H, what is the true cost to Duck if it had to defer the 100,000 deduction for the performers until 2020? Assume a 5% discount rate and a 21% marginal tax rate in 2019 and 2020.
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