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Items 14 and 15 are based on the following information

Items 14 and 15 are based on the following information

FINANCIAL ACCOUNTING
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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Items 14 and 15 are based on the following information. Ola Company provides 3-year warranty for the products it sells. Ola estimates that warranty costs P400 per unit sold. As of January 1, 2021, the liability for warranty has a balance of P800,000 for units sold in 2020. During the year Ola sold 5,000 units and actual warranty costs incurred were P1, 240,000. 14. How much is the warranty expense to be recognized in 2021? a. 2,000,000 b. 1,240,000 c. 3,240,000 d. 4,240,000 15. How much is the balance of the warranty obligation as of December 31, 2021? a. 1,560,000 b. 2,000,000 c. 3,560,000 d. 2,800,000 16. In 20x1, a lawsuit was filed against Vause Company for patent infringement. The plaintiff is claiming P400M in damages. Vause's legal counsel believes that it is probable that Vause will lose the lawsuit and pay damages of not less than P40M but not more than P400M. The probability of any amount within the range is as likely as any other amount also within the range. The plaintiff has offered. to settle the lawsuit out of court for P360M but Vause did not agree to the settlement. How much is the provision to be reported in Vause's year-end financial statements? a. 360M b. 220M c. 400M d. 40M
Transcribed Image Text:Items 14 and 15 are based on the following information. Ola Company provides 3-year warranty for the products it sells. Ola estimates that warranty costs P400 per unit sold. As of January 1, 2021, the liability for warranty has a balance of P800,000 for units sold in 2020. During the year Ola sold 5,000 units and actual warranty costs incurred were P1, 240,000. 14. How much is the warranty expense to be recognized in 2021? a. 2,000,000 b. 1,240,000 c. 3,240,000 d. 4,240,000 15. How much is the balance of the warranty obligation as of December 31, 2021? a. 1,560,000 b. 2,000,000 c. 3,560,000 d. 2,800,000 16. In 20x1, a lawsuit was filed against Vause Company for patent infringement. The plaintiff is claiming P400M in damages. Vause's legal counsel believes that it is probable that Vause will lose the lawsuit and pay damages of not less than P40M but not more than P400M. The probability of any amount within the range is as likely as any other amount also within the range. The plaintiff has offered. to settle the lawsuit out of court for P360M but Vause did not agree to the settlement. How much is the provision to be reported in Vause's year-end financial statements? a. 360M b. 220M c. 400M d. 40M
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