During 2019, Mansmith Company guaranteed a supplier’s P500,000 loan from a bank. On October 1, 2019, the entity was notified that the supplier had defaulted on the loan and filed for bankruptcy protection. Counsel believed that the entity would probably have to pay P250,000 under the guarantee. As a result of the supplier’s bankruptcy, the entity entered into a contract in December 2019 to retool its machines so that the entity could accept parts from other suppliers. Retooling costs are estimated to be P300,000.
During 2019, Mansmith Company guaranteed a supplier’s P500,000 loan from a bank. On October 1, 2019, the entity was notified that the supplier had defaulted on the loan and filed for bankruptcy protection. Counsel believed that the entity would probably have to pay P250,000 under the guarantee. As a result of the supplier’s bankruptcy, the entity entered into a contract in December 2019 to retool its machines so that the entity could accept parts from other suppliers. Retooling costs are estimated to be P300,000.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
Related questions
Question
CHOOSE THE LETTER OF ANSWER
During 2019, Mansmith Company guaranteed a supplier’s P500,000 loan from a bank. On October 1, 2019, the entity was notified that the supplier had defaulted on the loan and filed for bankruptcy protection. Counsel believed that the entity would probably have to pay P250,000 under the guarantee. As a result of the supplier’s bankruptcy, the entity entered into a contract in December 2019 to retool its machines so that the entity could accept parts from other suppliers. Retooling costs are estimated to be P300,000.What amount should be reported as liability on December 31, 2019?
a. 250,000
b. 450,000
c. 550,000
d. 750,000
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
Step by step
Solved in 2 steps
Recommended textbooks for you
Accounting
Accounting
ISBN:
9781337272094
Author:
WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.
Publisher:
Cengage Learning,
Accounting Information Systems
Accounting
ISBN:
9781337619202
Author:
Hall, James A.
Publisher:
Cengage Learning,
Accounting
Accounting
ISBN:
9781337272094
Author:
WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.
Publisher:
Cengage Learning,
Accounting Information Systems
Accounting
ISBN:
9781337619202
Author:
Hall, James A.
Publisher:
Cengage Learning,
Horngren's Cost Accounting: A Managerial Emphasis…
Accounting
ISBN:
9780134475585
Author:
Srikant M. Datar, Madhav V. Rajan
Publisher:
PEARSON
Intermediate Accounting
Accounting
ISBN:
9781259722660
Author:
J. David Spiceland, Mark W. Nelson, Wayne M Thomas
Publisher:
McGraw-Hill Education
Financial and Managerial Accounting
Accounting
ISBN:
9781259726705
Author:
John J Wild, Ken W. Shaw, Barbara Chiappetta Fundamental Accounting Principles
Publisher:
McGraw-Hill Education