Problem 1 On March 1, 2019, a suit was filed against ABC Company for patent infringement. ABC's legal counsel believed an unfavorable outcome is probable and estimated that the entity will have to pay between P850,000 and P900,000 in damages. However, ABC's legal counsel is of the opinion that P600,000 is a better estimate than any other amount in the range. The situation was unchanged when December 31, 2019 financial statements were released on February 15,2020. What amount should be accrued as liability on December 31, 2019 in connection with this law suit? Problem 2 On February 5, 2020, an employee filed a P2,000,000 lawsuit against XYZ Company for damages suffered when plant of the entity exploded on December 29, 2019. The entity's legal counsel believed the entity will probably lose the lawsuit and estimated the loss to be P500,000. The employee has offered to settle the lawsuit out of court for P900,000 but the entity will not agree to the settlement. On December 31, 2019, what amount should be reported as accrued liability. Problem 3 ZEN Company is the defendant in a lawsuit filed by Will in 2019 disputing the validity of copyright held by ZEN? On December 31, 2019, ZEN determined that Will would probably be successful 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, 2019 On December 31, 2020, ZEN and Will agreed to a settlement providing for cash payment for P250,000 by ZEN to Will and transfer of ZEN's copyright to Will. The carrying amount of the copyright on ZEN's accounting records was P50,000 on December 31, 2020. What would be the effect of the settlement on ZEN's income before tax in 2020?
Problem 1 On March 1, 2019, a suit was filed against ABC Company for patent infringement. ABC's legal counsel believed an unfavorable outcome is probable and estimated that the entity will have to pay between P850,000 and P900,000 in damages. However, ABC's legal counsel is of the opinion that P600,000 is a better estimate than any other amount in the range. The situation was unchanged when December 31, 2019 financial statements were released on February 15,2020. What amount should be accrued as liability on December 31, 2019 in connection with this law suit? Problem 2 On February 5, 2020, an employee filed a P2,000,000 lawsuit against XYZ Company for damages suffered when plant of the entity exploded on December 29, 2019. The entity's legal counsel believed the entity will probably lose the lawsuit and estimated the loss to be P500,000. The employee has offered to settle the lawsuit out of court for P900,000 but the entity will not agree to the settlement. On December 31, 2019, what amount should be reported as accrued liability. Problem 3 ZEN Company is the defendant in a lawsuit filed by Will in 2019 disputing the validity of copyright held by ZEN? On December 31, 2019, ZEN determined that Will would probably be successful 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, 2019 On December 31, 2020, ZEN and Will agreed to a settlement providing for cash payment for P250,000 by ZEN to Will and transfer of ZEN's copyright to Will. The carrying amount of the copyright on ZEN's accounting records was P50,000 on December 31, 2020. What would be the effect of the settlement on ZEN's income before tax in 2020?
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:Problem 1
On March 1, 2019, a suit was filed against ABC Company for patent infringement. ABC's legal
counsel believed an unfavorable outcome is probable and estimated that the entity will have
to pay between P850,000 and P900,000 in damages.
However, ABC's legal counsel is of the opinion that P600,000 is a better estimate than any
other amount in the range.
The situation was unchanged when December 31, 2019 financial statements were released
on February 15,2020.
What amount should be accrued as liability on December 31, 2019 in connection with this law
suit?
Problem 2
On February 5, 2020, an employee filed a P2,000,000 lawsuit against XYZ Company for
damages suffered when plant of the entity exploded on December 29, 2019. The entity's legal
counsel believed the entity will probably lose the lawsuit and estimated the loss to be
P500,000.
The employee has offered to settle the lawsuit out of court for P900,000 but the entity will not
agree to the settlement.
On December 31, 2019, what amount should be reported as accrued liability.
Problem 3
ZEN Company is the defendant in a lawsuit filed by Will in 2019 disputing the validity of
copyright held by ZEN?
On December 31, 2019, ZEN determined that Will would probably be successful 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, 2019
On December 31, 2020, ZEN and Will agreed to a settlement providing for cash payment for
P250,000 by ZEN to Will and transfer of ZEN's copyright to Will.
The carrying amount of the copyright on ZEN's accounting records was P50,000 on
December 31, 2020.
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What would be the effect of the settlement on ZEN's income before tax in 2020?
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