Intermediate Accounting (2nd Edition)
2nd Edition
ISBN: 9780134730370
Author: Elizabeth A. Gordon, Jana S. Raedy, Alexander J. Sannella
Publisher: PEARSON
expand_more
expand_more
format_list_bulleted
Concept explainers
Question
Chapter 13, Problem 1JC
1.
To determine
Whether the company should accrue, disclose or not report at all the contingency in the financial statement dated on 31st December, 2018.
Given information:
The company has gone through a case in which P sued for patent infringement. As on December 31st, 2018, the case was in the early stage and the company believed that they are likely to win. By the end of year 2019, the case progressed and
2.
To determine
The way in which the contingency should be reported as on December 31st, 2019.
3.
To determine
The way in which the contingency should be reported as on December 31st, 2020.
Expert Solution & Answer
Want to see the full answer?
Check out a sample textbook solutionStudents have asked these similar questions
#22During 2018, Josephine company was sued by a competitor for P1,500,000 for infringement of a patent. Based on the adviceof the entity’s legal counsel, Josephine company accrued the sum of P900,000 as a provision in its financial statements for theyear ended December 31, 2018. Subsequently, on March 15, 2019, the supreme court decided in favor of the party alleginginfringement of the patent and ordered the defendant to pay the aggrieved party a sum of P1,050,000. The financial statementswere prepared by the entity’s management on February 15, 2019 and approved by the board of directors on March 31, 2019.How much should be recognized as accrued liability on December 31, 2018?
PLS provide solution and explanation for the answer above
Philippines Accounting standard
1
In November 2019, Manly Ltd, a manufacturer of heating systems, was taken to court by one of its competitors, Heating Ltd, under the Competition and Consumer Act 2010(Cth). Heating alleged that Manly sought to enter into exclusive agreements with several retailers that they would only stock Manley’s products. While manly incurred $240000 in legal costs in defending the action, the case was settled out of court. The terms of the agreement on 20 February 2020 provided that Manly would pay Heating $$500,000 immediately, and an amount equal to 3% of profits over the next two years. For 2018/2019 the profit was estimated to be $660,000 and the year after $780,000. Advise Manly on the deductibility of this expenditure. Make sure you include the relevant sections of the legislation
Smart Company provided the following information as of December 31, 2019:• Smart is the plaintiff in a lawsuit which would award damages normally set at the maximum of P1,000,000. Its legal counsel believes that is it probable that the action filed will be enforced by the court.• The entity is defending a lawsuit for patent infringement. The entity’s legal counsel believes that there is a 25% chance that the business will win the lawsuit. Damages payable ranges from P600,000 to P1,800,000.• On February 16, 2020, the local government is in the process of investigating an environmental violation committed by the entity last November. It is probable that the business will pay fees in relation to said violation and estimates the best amount at P1,000,000.• Smart is also involved in a lawsuit for a dispute with a customer. On December 31, 2019, the attorneys believe that it will remotely result to a favorable outcome. Expected damages would be 50% for P1,000,000, 20% for P3,000,000 and 30%…
Chapter 13 Solutions
Intermediate Accounting (2nd Edition)
Ch. 13 - Prob. 13.1QCh. 13 - Prob. 13.2QCh. 13 - Prob. 13.3QCh. 13 - Do sellers recognize sales taxes as expenses on...Ch. 13 - Prob. 13.5QCh. 13 - Prob. 13.6QCh. 13 - Prob. 13.7QCh. 13 - What is a gam contingency? Is It accrued and...Ch. 13 - Do firms always accrue and record loss...Ch. 13 - Prob. 13.10Q
Ch. 13 - Prob. 13.11QCh. 13 - Prob. 13.12QCh. 13 - Prob. 13.13QCh. 13 - Prob. 13.14QCh. 13 - Prob. 13.15QCh. 13 - Prob. 13.16QCh. 13 - Prob. 13.1MCCh. 13 - Prob. 13.2MCCh. 13 - Prob. 13.3MCCh. 13 - Medical Services Inc allows employees at the end...Ch. 13 - Trade Notes Payables. On February 1, Seville...Ch. 13 - Unearned Revenues. On June 1 of the current year,...Ch. 13 - Unearned Revenues. GoSnow Inc. provides snow...Ch. 13 - Prob. 13.4BECh. 13 - Prob. 13.5BECh. 13 - Prob. 13.6BECh. 13 - Sales Taxes Payable. Kloth Fabric Store operates...Ch. 13 - Prob. 13.8BECh. 13 - Prob. 13.9BECh. 13 - Prob. 13.10BECh. 13 - Asset Retirement Obligation at Acquisition. On...Ch. 13 - Prob. 13.12BECh. 13 - Asset Retirement Obligation, Disposal. Buckner...Ch. 13 - Prob. 13.14BECh. 13 - Prob. 13.15BECh. 13 - Prob. 13.16BECh. 13 - Prob. 13.17BECh. 13 - Warranty Liability, Assurance-Type Warranty,...Ch. 13 - Prob. 13.19BECh. 13 - Prob. 13.20BECh. 13 - Trade Notes Payable. On November 1, Barcelona...Ch. 13 - Unearned Revenues. On May 1 of the current year,...Ch. 13 - Gift Cards. Diamond Depot sold 57,000 of gift...Ch. 13 - Sales Taxes Payable. Eaton Technology operates...Ch. 13 - Prob. 13.5ECh. 13 - Asset Retirement Obligation. On January 1,...Ch. 13 - Prob. 13.7ECh. 13 - Prob. 13.8ECh. 13 - Prob. 13.9ECh. 13 - Prob. 13.10ECh. 13 - Prob. 13.11ECh. 13 - Accounting for Premiums. Supergreen Grocers, Inc....Ch. 13 - Prob. 13.13ECh. 13 - Payroll Taxes Payable, Pay Exceeds. Wage Base....Ch. 13 - Current Operating Liabilities. James Stores, Inc....Ch. 13 - Prob. 13.2PCh. 13 - Prob. 13.3PCh. 13 - Prob. 13.4PCh. 13 - Prob. 13.5PCh. 13 - Prob. 13.6PCh. 13 - Prob. 13.7PCh. 13 - Payroll Taxes Payable. Jackson Corporation employs...Ch. 13 - Prob. 1JCCh. 13 - Prob. 2JCCh. 13 - Prob. 3JCCh. 13 - Financial Statement Analysis Case You are...Ch. 13 - Surfing the Standards Case 1: Environmental...Ch. 13 - Prob. 2SSCCh. 13 - Prob. 1BCC
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.Similar questions
- CHOOSE THE LETTER OF ANSWER In May 2019, Caso Company filed suit against Wayne Company seeking P1,900,000 damages for patent infringement. A court verdict in November 2019 awarded Caso P1,500,000 in damages, but Wayne’s appeal is not expected to be decided before 2020. Caso’s counsel believed it is probable that Caso will be successful against Wayne 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 Caso record as income from the lawsuit for the year ended December 31, 2019? a. 1,500,000b. 1,100,000c. 1,000,000d. 0arrow_forward1. Harmonious Company acquired a patent for a drug with a remaining legal and useful life of six years on January 1, 2019 for P5,400,000. The entity used straiht line amortization. On January 1, 2021, a new patent was received for an improved version of the same drug. Thenew patent has a legal and useful life of twenty years. What amount should be recorded as amortization expense for 2021? 2. At the beginning of the current year, Hart Company signed an agreement to operate aa a franchise for an inital franchise fee of P6,000,000. On the same date, the entity paid P2,000,000 and areed to pay the balance in four equal annual payments of P1,000,000 at every year-end. The down payment is not refundable and no future services are required of the franchisor. The entity can borrow at 14% for a loan of this type. Presen value of 1 at 14% for 4 preiods 0.59 Future amount of 1 at 14% for 4 periods 1.69…arrow_forwardMarch 2025, Wyoming Company filed a suit against DC Company seeking P2,000,000 damages for patent infringement. A court decision on November 2025 awarded Wyoming Company P1,750,000 in damages. DC Company motioned to appeal the decision which was expected to be resolved within 2026. Wyoming Company’s counsel believed it is probable that it will be successful against DC Company for an estimated amount ranging from P1,400,000 to P1,750,000, which P1,500,000 as the most likely amount. The amount reported in Wyoming Company’s 2025 statement of profit or loss statement isarrow_forward
- 3. Determine the implication of the following independent cases to the December 31, 2020financial statements as per PAS 37, on Provisions, Contingent Liabilities, and ContingentAssets.Case 1On December 5, 2020, an employee filed a P3,000,000 lawsuit against Lance Company fordamages suffered when one of the company’s equipment malfunctioned in August, 2020.In your inquiry of the company’s legal counsel, the legal counsel expects the company willlose the lawsuit and estimates the losses to be between P500,000 and P1,500,000. Theemployee has offered to settle the lawsuit out of court for P1,200,000, but Lance Companywill not agree to the settlement.Case 2Lance Company has guaranteed a loan of P2,000,000 of one of its key officers from a bankin 2020. By the time the financial statements of Lance Company were approved forissuance by its BOD, it is clear that the key officer is in financial difficulties and it is probablethat Lance Company will meet the guarantee.Case 3On December 20, 2020,…arrow_forward3) The client purchased raw material that was received just before year-end. The purchase was recorded based on its estimated value. The invoice was not received until February 5, 2021, and the cost was substantially different than was estimated4) On February 15, 2021, the civil court decided that Client Company must pay compensation loss due to defect product sold to their customer. lawsuits started in court since June 20205) On February 20, 2021, a major of client customer which has large amount of outstanding A/R suddenly fill for bankruptcy6) On April 1, 2021 fire rage accident destroy client warehouse and the loss were materialQuestions:a. Indicate type 1 subsequent event, type 2 subsequent event, or not subsequent event. What kinds of action, client need to do? Adjust, disclose, or no need to do adjust/disclose for every point form 1) to 6). Provide the reason why it should be adjusted or disclose or neither. (30%)b. What effect on auditors’ independent report if client refused…arrow_forward2. Paris paid Cherry $333,333 on 12/31/2020 for the exclusive right to market a particular product using the Cherry Co name and logo in promotional material. The franchise follows the rules of Going Concern. Paris also spent $600,000 on 12/31/2020 in developing a new manufacturing process. Its application for a patent is submitted. Paris believes it will be successful What is the Net Impact on Net Income for the year ended 2021?arrow_forward
- Problem 12. On January 1, 2020, Brie Company bought a trademark for P3,000,000. An independent consultant was hired to estimate the trademark’s life which is to be indefinite. The carrying amount of the trademark was P1,500,000 on the books of the seller. On December 31, 2020, what is the carrying amount of the trademark in Brie’s books?arrow_forwardQ. On 1 June 2020, a legal claim was made against HS Ltd for a faulty product. Lawyers have advised there is a 90% chance the claim will be successful and HS Ltd will have to pay a settlement amount of £75,000. There have been a number of complications with the court case, and it is not be likely to be fully settled until June 2022.What entry should be made in relation to this claim for the year ended 31March 2021? a) No entry is requiredb) HS Ltd should recognise a provision for £67,500c) HS Ltd should recognise a provision for £75,000d) HS Ltd should disclose this as a contingent liabilityarrow_forwardBeautiful 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?arrow_forward
- Authors Academic Press faces three potential contingency situations, described below. Authors’ fiscal year ends December 31, 2021.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 August 2021, a worker was injured in an accident, partially as a result of his own negligence. The worker has sued the company for $1.2 million. Legal counsel believes it is reasonably possible that the outcome of the suit will be unfavorable, and that the settlement would cost the company from $300,000 to $600,000.2. A suit for breach of contract seeking damages of $3 million was filed by an author on October 4, 2021. Legal counsel believes an unfavorable outcome is probable. A reasonable estimate of the award to the plaintiff is between $1.5 million and $2.25 million. No amount within this range is a better estimate of potential damages than any other amount.3. Authors is the plaintiff in…arrow_forwardOn January 2, 2018, David Corporation purchased a patent for $500,000. The remaining legal life is 12 years, butthe company estimated that the patent will be useful only for eight years. In January 2020, the company incurredlegal fees of $45,000 in successfully defending a patent infringement suit. The successful defense did not changethe company’s estimate of useful life.Required:Prepare journal entries related to the patent for 2018, 2019, and 2020.arrow_forwardOn January 1, 2009, Jonalyn Company purchased a patent from an original patentee for P2,400,000. The remaining legal life of the patent is 15 years but the useful life is only 12 years. On January 1, 2010, the entity paid P550,000 in successfully defending the patent in an infringement suit filed against the entity. On January 1, 2011, the entity acquired a competing patent for P1,500,000. The competing patent has a remaining legal life 15 years but it is not to be used because it was intended to protect the original patent. Question: What is the carrying amount of the patent on December 31, 2011?arrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
- Intermediate Accounting: Reporting And AnalysisAccountingISBN:9781337788281Author:James M. Wahlen, Jefferson P. Jones, Donald PagachPublisher:Cengage Learning
Intermediate Accounting: Reporting And Analysis
Accounting
ISBN:9781337788281
Author:James M. Wahlen, Jefferson P. Jones, Donald Pagach
Publisher:Cengage Learning