Intermediate Accounting: Reporting And Analysis
3rd Edition
ISBN: 9781337788281
Author: James M. Wahlen, Jefferson P. Jones, Donald Pagach
Publisher: Cengage Learning
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Chapter 5, Problem 4MC
To determine
Identify the correct option for the given situation.
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Mama Mo Na Tita Ko Corporation, a manufacturer of cleaning products, is preparing annual financial statements at December 31, 2022. Because of a recently proven health hazard in one of its cleaning products, the government has clearly indicated its intention of having the company recall all cans of this paint sold in the last three months. The management estimates that this recall would cost P800,000. What accounting recognition, if any, should be accorded this situation?
Statement 1: Recognize expense of P800,000 and liability of P5,800,000.
Statement 2: Disclosed P800,000 as contingent liability in the notes to financial statement.
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ABC Corporation a manufacturer of cleaning products is preparing annual financial statements at December 31, 2020. Because of a recently proven health hazard in one of its cleaning products, the PH government has clearly indicated its intention of having ABC recall all can of this paint sold in the last three months. The management of ABC estimates that this recall would cost P5,800,000.
What accounting recognition, if any, should be accorded this situation?
6
Mama Mo Na Tita Ko Corporation, a manufacturer of cleaning products, is preparing annual financial statements at December 31, 2022. Because of a recently proven health hazard in one of its cleaning products, the government has clearly indicated its intention of having the company recall all cans of this paint sold in the last three months. The management estimates that this recall would cost P800,000. What accounting recognition, if any, should be accorded this situation?
Statement 1: Recognize expense of P800,000 and liability of P5,800,000.
Statement 2: Disclosed P800,000 as contingent liability in the notes to financial statement.
Group of answer choices
Only statement 2 is correct
Only statement 1 is correct
Both statements are correct
Both statements are incorrect
Chapter 5 Solutions
Intermediate Accounting: Reporting And Analysis
Ch. 5 - In general, how does the income statement help...Ch. 5 - Prob. 2GICh. 5 - Define income under the capital maintenance...Ch. 5 - Prob. 4GICh. 5 - What is net income?Ch. 5 - What three things must a company determine to...Ch. 5 - Prob. 7GICh. 5 - Prob. 8GICh. 5 - Give an example and explanation for each of the...Ch. 5 - Define expenses. What do expenses measure?
Ch. 5 - Prob. 11GICh. 5 - Define gains and losses. Give examples of three...Ch. 5 - Prob. 13GICh. 5 - What items are included in a companys income from...Ch. 5 - How are unusual or infrequent gains or losses...Ch. 5 - What is interperiod tax allocation?Ch. 5 - Prob. 17GICh. 5 - Prob. 18GICh. 5 - Prob. 19GICh. 5 - Prob. 20GICh. 5 - Prob. 21GICh. 5 - Prob. 22GICh. 5 - Prob. 23GICh. 5 - Prob. 24GICh. 5 - Prob. 25GICh. 5 - Prob. 26GICh. 5 - Prob. 27GICh. 5 - Prob. 28GICh. 5 - Prob. 29GICh. 5 - Prob. 30GICh. 5 - What is the rate of return on common equity? What...Ch. 5 - Prob. 32GICh. 5 - Prob. 33GICh. 5 - Which of the following is expensed under the...Ch. 5 - The following information is available for Cooke...Ch. 5 - The following information is available for Wagner...Ch. 5 - Prob. 4MCCh. 5 - A loss from the sale of a component of a business...Ch. 5 - In a statement of cash flows, receipts from sales...Ch. 5 - Brandt Corporation had sales revenue of 500,000...Ch. 5 - Refer to RE5-1. Prepare a single-step income...Ch. 5 - Shaquille Corporation began the current year with...Ch. 5 - Dorno Corporation incurred expenses during the...Ch. 5 - Niler Corporation reported the following after-tax...Ch. 5 - Jordan Corporation reported retained earnings of...Ch. 5 - Prob. 7RECh. 5 - Prob. 8RECh. 5 - Amelias Bookstore reported net income of 62,000...Ch. 5 - Prob. 10RECh. 5 - Prob. 1ECh. 5 - Cost of Goods Sold and Income Statement Schuch...Ch. 5 - Income Statement Calculation OConnor Companys...Ch. 5 - Results of Discontinued Operations On November 30,...Ch. 5 - Multiple-Step and Single-Step In coin Statements...Ch. 5 - Prob. 6ECh. 5 - Multiple-Step and Single-Step Income Statements,...Ch. 5 - Cost of Goods Sold, Income Statement. and...Ch. 5 - Net Cash Flow from Operating Activities The...Ch. 5 - Prob. 10ECh. 5 - Statement of Cash Flows The following items...Ch. 5 - Statement of Cash Flows The following are several...Ch. 5 - Classifications Where would each of the following...Ch. 5 - Rate of Change nalyses eiher Company presents the...Ch. 5 - Prob. 15ECh. 5 - Prob. 16ECh. 5 - Income Statement and Retained Earnings Huff...Ch. 5 - Prob. 18ECh. 5 - Interim Reporting (Appendix 5.1) Miller Company...Ch. 5 - Prob. 1PCh. 5 - Prob. 2PCh. 5 - Income Statement, Lower Portion Cunningham Company...Ch. 5 - Financial Statement Violations of U.S. GAAP The...Ch. 5 - Misclassiflcations Rox Corporations multiple-step...Ch. 5 - Misclassifications Olson Companys bookkeeper...Ch. 5 - Complex Income Statement The following items were...Ch. 5 - Prob. 8PCh. 5 - Financial Statement Deficiencies The following is...Ch. 5 - Comprehensive: Balance Sheet from Statement of...Ch. 5 - Net Income and Comprehensive Income At the...Ch. 5 - Statement of Cash Flows A list of Fischer Companys...Ch. 5 - Statement of Cash Flows The following are Mueller...Ch. 5 - Prob. 14PCh. 5 - Rate of Change Analyses and Ratios Analyses The...Ch. 5 - Comprehensive: Income Statement and Retained...Ch. 5 - Comprehensive: Income Statement and Supporting...Ch. 5 - Prob. 18PCh. 5 - Prob. 19PCh. 5 - Prob. 20PCh. 5 - Prob. 1CCh. 5 - Prob. 2CCh. 5 - Prob. 3CCh. 5 - Prob. 4CCh. 5 - Nonrecurring Items Lynn Company sells a component...Ch. 5 - Prob. 6CCh. 5 - Accrual Accounting GAAP requires the use of...Ch. 5 - Ethics and Sale of Operating Component It is the...Ch. 5 - Analyzing Starbuckss Income Statement and Cash...Ch. 5 - Prob. 11C
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Coronado Industries, a manufacturer of household paints, is preparing annual financial statements at December 31, 2020. Because of a recently proven health hazard in one of its paints, the government has clearly indicated its intention of having Coronado recall all cans of this paint sold in the last six months. The management of Coronado estimates that this recall would cost $ 810000. What accounting recognition, if any, should be accorded this situation?
Appropriation of retained earnings of $ 810000
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Required:
Should this loss contingency be accrued, only disclosed, or neither?
What loss, if any, should Sound Audio report in its 2021 income statement?
What liability, if any, should Sound Audio report in its 2021 balance sheet?
1 Loss contingency _______________________
2 Loss _________ million
3 Liability _________ million
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Journal entry worksheet
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Transaction General Journal Debit Credit
1…
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Stanley Frozen Foods owes the bank $50,000 on a line of credit. Terms of the agreement specify that Stanley must maintain a minimum current ratio of “1.2 to 1”, or the entire outstanding balance becomes immediately due in full. To date, the company has complied with the minimum requirement.
However, management has just learned that a failed warehouse freezer has ruined thousands of dollars of frozen foods inventory. If the company records this loss, its current ratio will drop to approximately “0.8 to 1”.
Whether any or all of this loss may be covered by insurance currently is in dispute and will not be known for at least 90 days - perhaps much longer. There are several reasons why the insurance company may have no liability.
In trying to decide how to deal with the bank, StanleyFrozen Foods management is considering the followingoptions:
1. Postpone recording the inventory loss until the dispute with the insurance company is resolved.
2. Increase the current ratio to “1.2 to 1” by…
arrow_forward
Stanley Frozen Foods owes the bank $50,000 on a line of credit. Terms of the agreement specify that Stanley must maintain a minimum current ratio of “1.2 to 1”, or the entire outstanding balance becomes immediately due in full. To date, the company has complied with the minimum requirement.
However, management has just learned that a failed warehouse freezer has ruined thousands of dollars of frozen foods inventory. If the company records this loss, its current ratio will drop to approximately “0.8 to 1”.
Whether any or all of this loss may be covered by insurance currently is in dispute and will not be known for at least 90 days - perhaps much longer. There are several reasons why the insurance company may have no liability.
In trying to decide how to deal with the bank, Stanley Frozen Foods management is considering the following options:
Postpone recording the inventory loss until the dispute with the insurance company is resolved.
Increase the current ratio to “1.2 to 1” by making…
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