17. Tone Company is the defendant in a lawsuit filed by Witt in 2011 disputing the validity of copyright held by Tone. On December 31, 2011, Tone determined that Witt would probably be successful against Tone for an estimated amount of P400,000. Appropriately, a P400,000 los was accrued by a charge to income for the year ended December 31, 2011. On December 31, 2012, Tone and Witt agreed to a settlement providing for cash payment of P250,000 by Tone to Witt, and transfer of Tone's copyright to Witt. The carrying amount of the copyright on Tone's accounting records was P60,000 on December 31, 2012. What would be the effect of the settlement on Tone's income before tax in 2012? * a. 150,000 increase

17. Tone Company is the defendant in a lawsuit filed by Witt in 2011 disputing the validity of copyright held by Tone. On December 31, 2011, Tone determined that Witt would probably be successful against Tone for an estimated amount of P400,000. Appropriately, a P400,000 los was accrued by a charge to income for the year ended December 31, 2011. On December 31, 2012, Tone and Witt agreed to a settlement providing for cash payment of P250,000 by Tone to Witt, and transfer of Tone's copyright to Witt. The carrying amount of the copyright on Tone's accounting records was P60,000 on December 31, 2012. What would be the effect of the settlement on Tone's income before tax in 2012? * a. 150,000 increase

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

See similar textbooks

Related questions

Q: Blette Company is the defendant in a lawsuit filed by Kale in 2021 disputing the validity of a…

A: In simple terms contingent liability indicates a potential liability. It may or may not get…

Q: Tulane Tires wrote a contract for a $100,000 sale of tires to the new Garden District Tour Company.…

A: Under the US GAAP revenue needs to be recognised when the revenue is realised and earned i.e. on…

Q: Berry is employed as an Accounts Manager in the Jamaican company ADM Limited. In 2022, she earned a…

A: Step 1: Calculate Ms. Berry's gross income- Monthly salary: $820,000.00- Director's fees:…

Q: ABC Co. filed suit against EFG Ltd. in2016 seeking damages for patentinfringement. At December 31,…

A: EFG Ltd.'s Journal Entry for Contingent Liability in 2016Based on the information provided, EFG Ltd.…

Q: Indicate the income statement and balance sheet reporting by Pronghorn at October 31, 2020, of the…

A: Sales returns and allowances means value of goods that are being returned by customer or allowance…

Q: Probst Company acquired a trademark several years ago at a cost of $60,000. Probst has never…

A: GAAP stands for Generally Accepted Financial Practices, and it's based in the U.S. IFRS is a set of…

Q: Morley Manufacturing has notes receivable that have a fair value of P810,000 and a carrying amount…

A: Note receivable is the amount that is due to be received by the company on the note issued. It is an…

Q: Steel Magnolia Incorporated purchased a trademark 7 years ago for $275,000. Steel Magnolia believed…

A: An impairment loss seems to be the amount whereby an asset's or cash-generating unit's carrying…

Q: Sheffield Corporation owns a patent that has a carrying amount of $640,000. Sheffield expects future…

A: Impairment loss - when the carrying value of the asset in the books exceeds the recoverable amount…

Q: In early January 2024, Bramble Corporation applied for a trade name, incurring legal costs of…

A: Amortization is calculated by dividing the value of intangible assets by its useful life. It is…

Q: Use the following information for questions 6 and On December 31, 2018, Garnel Co. is in financial…

A: Net book value of the Equipment = Original cost - Accumulated depreciation Gain (loss) on the…

Q: ProWasher is the defendant in a patent infringement lawsuit filed by Sue Case over ProWasher’s use…

A: A contingent liability is a potential liability that may or may not occur, depending on the outcome…

Q: On December 31, 2018, Nolte Co. is in financial difficulty and cannot pay a note due that day. It is…

A: Answer: $300,000 gain Fair value of the equipment= $1,450,000 Carrying value of the equipment=…

Q: In January 2014, the Jennifer Corporation purchased a patent for $231,000 from Travis Company that…

A: Amortization expense: A charge created on intangible asset for its use over the life of asset. It is…

Q: Company S signs several purchase contracts in 2022. Under the terms of one contract, Company S will…

A: Journal Entries2022Account TitlesDebitCreditLoss on Purchase Contracts $100,000 Liability for…

Q: Sweet Company recently was sued by a competitor for patent infringement. Attorneys have determined…

A: As per the Perdunce Concept Sweet company has to create a Liability for Future Damages and Since…

Q: Aviation Systems is involved in a $10 million lawsuit filed against one of its suppliers, Electronic…

Q: This assignment is based on the case, Seal Polymer Industries v. Med-Express, Inc., 725 S.E.2d 5…

A: Definition: Corporation: The form of business entity, which is incorporated by state law into a…

Q: Reeves Company filed suit against Higgins, Incorporated, seeking damages for copyright violations.…

A: Liability -A liability refers to a corporation's duty that causes the company to forfeit future…

Q: DSG Inc. reported the carrying amount of its copyrights as $60,000 before a win on a copyright…

A: Step 1:Computation of the annual amortization expense w.e.f. 8/1/20X2:Annual amortization expense =…

Q: Reeves Co. filed suit against Higgins, Inc., seeking damages for copyright violations. Higgins'…

A: Contingent Liability: A contingent liability is an obligation that may arise as a result of the…

Q: The Commonwealth of Virginia filed suit in October 2022 against Northern Timber Corporation, seeking…

A: Contingent liabilities disclosure in financial statements refers to the detailed presentation and…

Q: Sapporo K.K. was sued by a competitor in late 2017, and company management concluded that there was…

A: Solution: Both IAS 37 of IFRS and ASC 450 of US GAAP, suggest the same accounting treatment for…

Q: The Park Company is affected by the following contingencies at the end of 2016: 1. Expropriation…

A: Amount Parks should accrue for loss contingencies in 2016 = probable required to pay damages in a…

Concept explainers

Contingent Liabilities and Provisions

A contingent liability can be defined as a liability the occurrence of which is dependent upon the happening of an uncertain future event. It is generally recorded in the books only when the amount of liability can be reasonably estimated and the contingency is likely to occur shortly.

Question

17. Tone Company is the
defendant in a lawsuit filed by
Witt in 2011 disputing the
validity of copyright held by
Tone. On December 31, 2011,
Tone determined that Witt
would probably be successful
against Tone for an estimated
amount of P400,000.
Appropriately, a P400,000 loss
was accrued by a charge to
income for the year ended
December 31, 2011. On
December 31, 2012, Tone and
Witt agreed to a settlement
providing for cash payment of
P250,000 by Tone to Witt, and
transfer of Tone's copyright to
Witt. The carrying amount of
the copyright on Tone's
accounting records was
P60,000 on December 31,
2012. What would be the
effect of the settlement on
Tone's income before tax in
2012? *
a. 150,000 increase
b. 60,000 decrease
c. 90,000 increase
d. 90,000 decrease

Expert Solution

This question has been solved!

Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.

This is a popular solution!

SEE SOLUTION Check out a sample Q&A here

Step 1

VIEW

Step 2

VIEW

Trending now

This is a popular solution!

Step by step

Solved in 2 steps

SEE SOLUTION Check out a sample Q&A here

Knowledge Booster

Accounting for Current liabilities, Provisions and Contingencies

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

11
Pitchfork Company is being sued by a competitor in a lawsuit alleging patent infringement. Pitchfork's lawyers state that it is possible Pitchfork will lose the suit and be found liable for a judgment costing anywhere from $1,800,000 to $9,000,000. However, the lawyers state that no one estimate is more likely. As a result of the above information, Pitchforks should report: a contingent liability in the amount of $5,400,000, representing the average amount within the range of damages, on its Balance Sheet and disclose an additional contingency of up to $3,600,000 in the notes to the Balance Sheet. a contingent liability in the amount of $1,800,000 on its Balance Sheet and disclose an additional contingency of up to $7,200,000 in the notes to the Balance Sheet. a contingent liability in the amount of $5,400,000 on its Balance Sheet, but not disclose any additional contingency. O a possible contingency of between $1,800,000 and $9,000,000 only in the notes of the 10K.
In May 2019, Colt Company filed suit against Johnson Company seeking P1,900,000 damages for patent infringement. A court verdict in November 2019 awarded Colt Company P1,500,000 in damages, but Johnson Company's appeal is not expected to be decided before 2020. The legal counsel believed it is probable that Colt Company will be successful against Johnson Company 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 Colt Company record as income from the lawsuit for the December 31, 2019? year ended
Swifty Company incurred $551000 of research and development cost in its laboratory to develop a patent granted on January 1, 2027. On July 31, 2027, Swifty paid $83600 for legal fees in a successful defense of the patent. The total amount debited to Patents through July 31, 2027, is
Corning Industries owns a patent for which it paid $77,000. At the end of the current year, accumulated amortization on the patent totaled $14,000. Due to adverse economic conditions, Corning’s management determined that it should assess whether an impairment loss should be recognized for the patent. The estimated undiscounted future cash flows to be provided by the patent total $45,000, and the patent's fair value is $30,000. (a) What is the amount of the impairment loss, if any, on the patent at the end of the current year? (b) What is the book value of the patent after any impairment loss is recorded?
Reeves Company filed suit against Higgins, Incorporated, seeking damages for copyright violations. Higgins' legal counsel believes it is probable that Higgins will settle the lawsuit for an estimated amount in the range of $190,000 to $290,000, with all amounts in the range considered equally likely. How should Higgins report this litigation? Multiple Choice As a liability for $290,000 with disclosure of the range In a disclosure only; no liability is reported As a liability for $240,000 with disclosure of the range As a liability for $190,000 with disclosure of the range
Dengar