A lawsuit has been filed against Sunland Company for wrongful termination. Sunland's legal counsel had encouraged the company tosettle because it is likely they will lose the case. The amount of the loss is estimated to be between $573000 and $1062000. Legalcounsel believes that the case could be settled for $864000. Sunland should reportO a contingent liability for $864000.O an estimated liability for $573000.O a contingent loss of $1062000.O no loss or liability until the case is settled.Attempts: 0 of 1 used Submit Answer

The objective of the question is to determine how Sunland Company should report the potential loss…

Answered: A lawsuit has been filed against…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Top Sound International designs and sells high-end stereo equipment for auto and home use. Engineers notified management in December 2024 of a circuit flaw in an amplifier that poses a potential fire hazard. Further investigation indicates that a product recall is probable, estimated to cost the company $3.2 million. The fiscal year ends on December 31. Required: 1. Should this contingent liability be reported, disclosed in a note only, or neither?2. What loss, if any, should Top Sound report in its 2024 income statement?3. What liability, if any, should Top Sound report in its 2024 balance sheet?4. What entry, if any, should be recorded?
Question 20. The amount of provisions that should be recognized at December 31, 2021 is?
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
On March 15, 2022, MOSCOW received a court decision on a lawsuit filed against the company in January 2021. As of December 31, 2021, MOSCOW did not recognize a liability as a result of this case because according to its legal counsel, it was not probable that the company will be found liable. On March 15, the court ordered MOSCOW to pay the amount of P2 million to the plaintiff. Although MOSCOW intended to make an appeal, it is still considered probable that it will pay an amount between P1.5 million to P2 million, with P2 million considered to be the most probable amount. MOSCOW's financial statements for the year ended December 31, 2021 were authorized for issue on April 30, 2022. How much is the estimated liability for damages to be reported by MOSCOW on its statement of financial position at December 31, 2021? *
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.
15. GINGERBREAD Company is involved in a litigation regarding a faulty product sold in a prior year. The entity has consulted with lawyer and determined that there is a 50% chance of losing. The lawyer estimated that the amount of any payment would be between P500,000 to P800,000 with P500,000 as the best estimate. What is the required journal entry as a result of this litigation? *
Blossom Inc. recently replaced a piece of automatic equipment at a net price of $3,500, f.o.b. factory. The replacement was necessary because one of Blossom’s employees had accidentally backed his truck into Blossom’s original equipment and made it inoperable. Because of the accident, the equipment had no resale value to anyone and had to be scrapped. Blossom’s insurance policy provided for a replacement of its equipment and paid the price of the new equipment directly to the new equipment manufacturer, minus the deductible amount paid to the manufacturer by Blossom. The $3,500 that Blossom paid was the amount of the deductible that it has to pay on any single claim on its insurance policy. The new equipment represents the same value in use to Blossom. The used equipment had originally cost $64,000. It had a book value of $45,000 at the time of the accident and a second-hand market value of $50,000 before the accident, based on recent transactions involving similar equipment. Freight…
Tyeso Company entered into a lawsuit on December 25, 2020 and recognized on the same date a provision of P2,000,000. On February 28, 2021, when the financial statements for the year ended December 31, 2020 had not yet been authorized for issue, the case was settled and the court decided the final total damages to paid by the entity at P3,000,000. In addition, the Company has a loan payable of P2,000,000 due on June 30, 2021. On January 1, 2021, before the authorization of the issuance of financial statements, the bank agreed to refinance the loan, extending the maturity to June 30, 2023. Also, another loan amounting to P7,000,000 due on December 1, 2021 was obtained by the Company from BDO. TYESO Company has the discretion to refinance or roll over the loan for at least twelve months from December 31, 2021. 1. Compute for the current liability to be presented in the financial position a. P12 million b. P10 million c. P5 million d. P4 million Answer: 2. Compute for…
1. Northstar Resources is now involved in a class action suit brought about by the farmers. They are suing for $100 million in compensation for their land, which is now unusable because of the oil spill. The company’s lawyers deem they can settle for 15% of that amount. 2. In an unrelated matter in July 2021 a competitor commenced a suit against Northstar Resources alleging violation of antitrust laws and seeking damages of $2.5 million. Northstar Resources denies the allegations, and the likelihood that Northstar Resources will have to pay any damages is remote. Discuss the financial reporting issues (recognize or do not recognize) and provide recommendation(s) on how to handle each situation. As you write, keep your audience in mind.
On December 31, 2019, the Board of Directors of EFF Company committed to a plan to discontinue the operations of its furniture division. The entity estimated that the furniture’s operating loss for 2020 would be ₱500,000 and that the fair value of its facilities was ₱300,000 less than the carrying amount. The furniture division’s 2019 operating loss was ₱1,400,000 and the division was actually sold for ₱400,000 less than the carrying amount in 2020. The effective tax rate is 30%. What amount should be reported as loss from discontinued operations in 2019? ₱ 1,190,000 ₱ 0 ₱ 1,400,000 ₱ 980,000
Superb Corporation is being sued for illness caused to local residents as a result of negligence on the company's part in permitting the local residents to be exposed to highly toxic chemicals from its plant. Superb's lawyer states that it is probable that Superb will lose the suit and be found liable for a judgment costing Superb anywhere from $1,200,000 to $6,000,000. However, the lawyer states that the most probable cost is $3,600,000. As a result of the above facts, Superb should accrue Select one: а. no loss contingency but disclose a contingency of $1,200,000 to $6,000,000. O b. a loss contingency of $1,200,000 and disclose an additional contingency of up to $4,800,000. Ос. a loss contingency of $3,600,000 but not disclose any additional contingency. O d. a loss contingency of $3,600,000 and disclose an additional contingency of up to $2,400,000.
ABC at the year end has the following outside lawsuits: A suit that is probable of loss with an estimated loss of $50,000. A suit that is probable of winning with an estimated gain of $20,000 A suit that is remote of losing with an estimated loss of $10,000. What amount of Contingent liability would ABC report at year end? Select an answer and submit. For keyboard navigation, use the up/down arrow keys to select an answer. a $30,000 b $40,000 c $50,000 d $60,000

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