Concept explainers
(1)
Contingent liability is one form of liability that arises based on a particular outcome of a specific event. They are possible obligation that might arise or might not arise based on the future events. It is otherwise called as probable liability or eventual liability. Following are examples of contingencies:
- Income tax disputes
- Discounted notes receivable
- Lawsuits
- Debt guarantees
- Failure to follow government regulations
Loss contingency: Loss contingency is contingency where existing situation or circumstances where potential losses are resolved and thus, future events are occurred. Examples for loss contingency are as follows:
- 1. Possible repair to a product under any warranty
- 2. Defendant in a lawsuit
- 3. Uncollectible receivables
To determine: The ways to treat the settlement.
2.
To recreate:
3.
To treat: The settlement if it has occurred after February 25, 2014.
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INTERMEDIATE ACCOUNTING RMU 9TH EDITION
- P18–15 VOLUNTARY SETTLEMENTS: PAYMENTS Jacobi Supply Company recently ran into certain financial difficulties that have resulted in the initiation of voluntary settlement procedures. The firm currently has $150,000 in outstanding debts and approximately $75,000 in liquidatable short-term assets. Indicate, for each of the following plans, whether the plan is an extension, a composition, or a combination of the two. Also indicate the cash payments and timing of the payments required of the firm under each plan. Each creditor will be paid ¢50¢ on the dollar immediately, and the debts will be considered fully satisfied. Each creditor will be paid ¢80¢ on the dollar in two quarterly installments of ¢50¢ and ¢30¢. The first installment is to be paid in 90 days. Each creditor will be paid the full amount of its claims in three installments of ¢50¢, ¢25¢, and ¢25¢ on the dollar. The installments will be made in 60-day intervals, beginning in 60 days. A group of creditors with claims of $50,000…arrow_forward4G 10:21 A O N Z8 KB/s : 94 1. During 2019, Yamashita 10 points Company introduced a new product carrying a two-year warranty against defects. The estimated warranty costs related to peso sales are 4% within 12 months following sale and 6% in the second 12 months following the sale. The entity reported sales of P5,000,000 for 2019 and P6,000,000 for 2020. The actual expenditures incurred amounted to P150,000 for 2019 and P550,000 for 2020. QUESTION: What amount should be reported as warranty expense for 2019? * 500,000 200,000 250,000 300,000 2. Durina 2019. Yamashita 10 pointsarrow_forwardLO6-4,LO6-5 E 6-5 Performance obligations LO6–2, On March 1, 2024, Gold Examiner receives $147,000 from a local bank and promises to deliver 100 units of certified l-oz. gold bars on a future date. The contract states that ownership passes to the bank when Gold Examiner delivers the products to Brink's, a third-party carrier. In addition, Gold Examiner has agreed to provide a replacement shipment at no additional cost if the product is lost in transit. The stand-alone price of a gold bar is $1,440 per unit, and Gold Examiner estimates the stand-alone price of the replacement insurance service to be $60 per unit. Brink's picked up the gold bars from Gold Examiner on March 30, and delivery to the bank occurred on April 1. Required: 1. How many performance obligations are in this contract? 2. Prepare the journal entry Gold Examiner would record on March 1. 3. Prepare the journal entry Gold Examiner would record on March 30. 4. Prepare the journal entry Gold Examiner would record on April…arrow_forward
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- Problem 26 Jem Riane Delos Reyes Bank granted a loan of P3,000,000 to a borrower on January 1, 2021. The terms of the loan were payment in full on December 31, 2026 plus annual interest payment at 8% every December 31. The first interest payment was made on December 31, 2021. However, on December 31, 2021, due to financial difficulties, the borrower informed Freetown Bank that it would probably miss the interest payments for the next two years. After that, the borrower expects to resume the annual interest payment but the principal would be paid on December 31, 2027 or one year late with interest paid for that additional year. Accordingly, the payments from the borrower are scheduled as follows: Date of Flow Cash Flow Amount 12/31/2022 No interest payment Nil 12/31/2023 No interest payment Nil 12/31/2024 Interest payment P 240,000 12/31/2025 Interest payment 240,000 12/31/2026 Interest payment 240,000 12/31/2027 Interest payment 240,000 Principal payment 3,000,000 The…arrow_forward9 nts 3 O 03:06:29 You've worked out a line of credit arrangement that allows you to borrow up to $55 million at any time. The interest rate is .59 percent per month. In addition, 4 percent of the amount that you borrow must be deposited in a non-interest-bearing account. Assume that your bank uses compound interest on its line of credit loans. a. What is the effective annual interest rate on this lending arrangement? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) b. Suppose you need $23 million today and you repay it in 6 months. How much interest will you pay? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) a. Annual interest rate b. Interest paid Answer is not complete. 7.32 X %arrow_forwardQuestion 14 As of March 9, 2021, the price of GameStop Corp. (ticker: GME) is $246.90 and its closing price on March 10, 2020 is $4.23. You believe GME is overvalued and decide to short-sell GME. You have $112,380 worth of Treasury Bills in your brokerage account that can be used as collateral. Your broker requires an initial margin of 50% and a maintenance margin of 42%. You must also set aside 100% of the cash proceeds as collateral. You decide to short as many shares as you can with the collateral you have. Pay special attention that you cannot purchase/sell/trade fractional shares. How much cushion (in dollars) do you have before you receive a margin call from your broker? That is, by how much the stock price could move in the "wrong" direction before you receive a margin call? Enter a number with two decimal points.arrow_forward
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