and revenue of P1,000,000.а.b As a receivable and deferred revenue of P1,000,000.As a disclosure of a contingent asset of P1,000,000.d As a disclosure of a contingent asset of P1,500,000.Problem 4-32 (AICPA Adapted)Tone Company is the defendant in a lawsuit filed by Witt in2019 disputing the validity of copyright held by Tone.On December 31, 2019, Tone determined that Witt wouldprobably be successful for an estimated amount of P400,000.Appropriately, a P400,000 loss was accrued by a charge toincome for the year ended December 31, 2019.On December 31, 2020, Tone and Witt agreed to a settlementproviding for cash payment of P250,000 by Tone to Witt andtransfer of Tone's copyright to Witt.The carrying amount of the copyright on Tone's accountingrecords was P50,000 on December 31, 2020.What would be the effect of the settlement on Tone's incomebefore tax in 2020?a. 150,000 increaseb. 150,000 decreasec. 100,000 increased. 100,000 decrease137

SOLUTION- CASH SETTLEMENT BETWEEN TONE AND WITT AMOUNTING 250000 . THEREFORE GAIN ON SETTLEMENT…

Problem 4-32 (AICPA Adapted) Tone Company is the defendant in a lawsuit filed by Witt 2019 disputing the validity of copyright held by Tone. On December 31, 2019, Tone determined that Witt wou probably be successful for an estimated amount of P400,00 Appropriately, a P400,000 loss was accrued by a charge income for the year ended December 31, 2019. On December 31, 2020, Tone and Witt agreed to a settleme providing for cash payment of P250,000 by Tone to Witt a: cransfer of Tone's copyright to Witt. The carrying amount of the copyright on Tone's accountin records was P50,000 on December 31, 2020. Vhat would be the effect of the settlement on Tone's incom efore tax in 2020? 150,000 increase 150,000 decrease 100,000 increase 100,000 decrease 137

Problem 4-32 (AICPA Adapted) Tone Company is the defendant in a lawsuit filed by Witt 2019 disputing the validity of copyright held by Tone. On December 31, 2019, Tone determined that Witt wou probably be successful for an estimated amount of P400,00 Appropriately, a P400,000 loss was accrued by a charge income for the year ended December 31, 2019. On December 31, 2020, Tone and Witt agreed to a settleme providing for cash payment of P250,000 by Tone to Witt a: cransfer of Tone's copyright to Witt. The carrying amount of the copyright on Tone's accountin records was P50,000 on December 31, 2020. Vhat would be the effect of the settlement on Tone's incom efore tax in 2020? 150,000 increase 150,000 decrease 100,000 increase 100,000 decrease 137

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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Concept explainers

Contingent Liabilities and Provisions

A contingent liability can be defined as a liability the occurrence of which is dependent upon the happening of an uncertain future event. It is generally recorded in the books only when the amount of liability can be reasonably estimated and the contingency is likely to occur shortly.

Question

and revenue of P1,000,000.
а.
b As a receivable and deferred revenue of P1,000,000.
As a disclosure of a contingent asset of P1,000,000.
d As a disclosure of a contingent asset of P1,500,000.
Problem 4-32 (AICPA Adapted)
Tone Company is the defendant in a lawsuit filed by Witt in
2019 disputing the validity of copyright held by Tone.
On December 31, 2019, Tone determined that Witt 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, Tone and Witt agreed to a settlement
providing for cash payment of P250,000 by Tone to Witt and
transfer of Tone's copyright to Witt.
The carrying amount of the copyright on Tone's accounting
records was P50,000 on December 31, 2020.
What would be the effect of the settlement on Tone's income
before tax in 2020?
a. 150,000 increase
b. 150,000 decrease
c. 100,000 increase
d. 100,000 decrease
137

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