Problem 2: Janmark Company provided the following selected transactions related to contingencies. The reporting period ends on December 31, 2020, and is issued on March 31, 2021. • The entity is involved in a lawsuit resulting from a dispute with a customer over a 2020 transaction. On December 31, 2020, lawyers advised that it was not probable that the entity would lose Php 2,000,000.00 in an unfavorable outcome. On February 15, 2021, judgment was rendered against the entity in the amount of Php 4,000,000.00 plus interest of Php 200,000.000. The entity does not plan to appeal the verdict. • Since August 2020, the entity has been involved in a labor dispute. Negotiation between the entity and the union has not produced a settlement. Since January 2020, strikes have been ongoing at these facilities. It is virtually certain that material cost will be incurred, but the resultant cost cannot be adequately measured. • The entity is the defendant in a lawsuit filed in January 2021 in which the plaintiff seeks Php 4,000,000.00 as an adjustment to the purchase price related to the sale of the entity's hardwood division in 2020. The lawsuit alleges that the entity misrepresented the division's assets and liabilities. The legal counsel advised that it is reasonably possible that the entity could lose Php 2, 500,000.00 but that it is extremely unlikely it could lose the Php 5,000,000.00 asked for. • On March 1, 2021, the provincial government investigates the possibility of environmental violations by the entity but has not proposed a penalty assessment. The management feels an assessment is reasonably possible, and if an assessment is made, a settlement of up to Php 4,000,000.00 is probable. Required: 1. Determine if each of the above cases requires a provision or not, explain why. 2. Prepare the journal entries that should be recorded as a result of the contingencies.
Problem 2: Janmark Company provided the following selected transactions related to contingencies. The reporting period ends on December 31, 2020, and is issued on March 31, 2021. • The entity is involved in a lawsuit resulting from a dispute with a customer over a 2020 transaction. On December 31, 2020, lawyers advised that it was not probable that the entity would lose Php 2,000,000.00 in an unfavorable outcome. On February 15, 2021, judgment was rendered against the entity in the amount of Php 4,000,000.00 plus interest of Php 200,000.000. The entity does not plan to appeal the verdict. • Since August 2020, the entity has been involved in a labor dispute. Negotiation between the entity and the union has not produced a settlement. Since January 2020, strikes have been ongoing at these facilities. It is virtually certain that material cost will be incurred, but the resultant cost cannot be adequately measured. • The entity is the defendant in a lawsuit filed in January 2021 in which the plaintiff seeks Php 4,000,000.00 as an adjustment to the purchase price related to the sale of the entity's hardwood division in 2020. The lawsuit alleges that the entity misrepresented the division's assets and liabilities. The legal counsel advised that it is reasonably possible that the entity could lose Php 2, 500,000.00 but that it is extremely unlikely it could lose the Php 5,000,000.00 asked for. • On March 1, 2021, the provincial government investigates the possibility of environmental violations by the entity but has not proposed a penalty assessment. The management feels an assessment is reasonably possible, and if an assessment is made, a settlement of up to Php 4,000,000.00 is probable. Required: 1. Determine if each of the above cases requires a provision or not, explain why. 2. Prepare the journal entries that should be recorded as a result of the contingencies.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:Problem 2: Janmark Company provided the following selected transactions related to contingencies. The
reporting period ends on December 31, 2020, and is issued on March 31, 2021.
The entity is involved in a lawsuit resulting from a dispute with a customer over a 2020 transaction. On
December 31, 2020, lawyers advised that it was not probable that the entity would lose Php
2,000,000.00 in an unfavorable outcome. On February 15, 2021, judgment was rendered against the
entity in the amount of Php 4,000,000.00 plus interest of Php 200,000.000. The entity does not plan to
appeal the verdict.
Since August 2020, the entity has been involved in a labor dispute. Negotiation between the entity and
the union has not produced a settlement. Since January 2020, strikes have been ongoing at these
facilities. It is virtually certain that material cost will be incurred, but the resultant cost cannot be
adequately measured.
• The entity is the defendant in a lawsuit filed in January 2021 in which the plaintiff seeks Php
4,000,000.00 as an adjustment to the purchase price related to the sale of the entity's hardwood
division in 2020. The lawsuit alleges that the entity misrepresented the division's assets and liabilities.
The legal counsel advised that it is reasonably possible that the entity could lose Php 2, 500,000.00 but
that it is extremely unlikely it could lose the Php 5,000,000.00 asked for.
• On March 1, 2021, the provincial government investigates the possibility of environmental violations
by the entity but has not proposed a penalty assessment. The management feels an assessment is
reasonably possible, and if an assessment is made, a settlement of up to Php 4,000,000.00 is probable.
Required:
1. Determine if each of the above cases requires a provision or not, explain why.
2. Prepare the journal entries that should be recorded as a result of the contingencies.
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