* Problem 4-5 (IAA) Western Company provided the following selected transactions related to contingencies. The fiscal year ends December 31, 2022. Financial statements are issued on April 1, 2023. * * No customer accounts have been shown to be uncollectible as yet but Western Company estimated that 3% of credit sales may eventually prove uncollectible. Credit sales amounted P30,000,000 for 2022. Western Company offered a one-year warranty against manufacturer's defects for all its products. Industry experience indicated that warranty costs approximated 2% of credit sales. Actual warranty expenditures totaled P350,000 in 2022 and were recorded as warranty expense when incurred. In December 2022, Western Company became aware of an engineering flaw in a product that poses a potential risk of injury. As a result, a product recall appears inevitable. This move would likely cost the entity P1,500,000. In November 2022, the City of Manila filed suit against Western Company asking civil penalties and injunctive relief for violations of clean water laws. Western Company reached a settlement with the city government authorites to pay P4,200,000 in penalties on February 15, 2023. Western Company is the plaintiff in a P4,000,000 lawsuit filed against a customer for costs and lost profit from contracts rejected in 2022. The lawsuit is in final appeal and attorneys advised that it is probable that Western Company will be awarded P3,000,000. Required: Prepare the appropriate journal entries that should be recorded as a result of each of these contingencies. If no journal entry is indicated, state the reason why.
* Problem 4-5 (IAA) Western Company provided the following selected transactions related to contingencies. The fiscal year ends December 31, 2022. Financial statements are issued on April 1, 2023. * * No customer accounts have been shown to be uncollectible as yet but Western Company estimated that 3% of credit sales may eventually prove uncollectible. Credit sales amounted P30,000,000 for 2022. Western Company offered a one-year warranty against manufacturer's defects for all its products. Industry experience indicated that warranty costs approximated 2% of credit sales. Actual warranty expenditures totaled P350,000 in 2022 and were recorded as warranty expense when incurred. In December 2022, Western Company became aware of an engineering flaw in a product that poses a potential risk of injury. As a result, a product recall appears inevitable. This move would likely cost the entity P1,500,000. In November 2022, the City of Manila filed suit against Western Company asking civil penalties and injunctive relief for violations of clean water laws. Western Company reached a settlement with the city government authorites to pay P4,200,000 in penalties on February 15, 2023. Western Company is the plaintiff in a P4,000,000 lawsuit filed against a customer for costs and lost profit from contracts rejected in 2022. The lawsuit is in final appeal and attorneys advised that it is probable that Western Company will be awarded P3,000,000. Required: Prepare the appropriate journal entries that should be recorded as a result of each of these contingencies. If no journal entry is indicated, state the reason why.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:Problem 4-5 (IAA)
Western Company provided the following selected
transactions related to contingencies.
The fiscal year ends December 31, 2022. Financial statements
are issued on April 1, 2023.
No customer accounts have been shown to be
uncollectible as yet but Western Company estimated that
3% of credit sales may eventually prove uncollectible.
Credit sales amounted P30,000,000 for 2022.
Western Company offered a one-year warranty against
manufacturer's defects for all its products. Industry
experience indicated that warranty costs approximated
2% of credit sales.
Actual warranty expenditures totaled P350,000 in 2022
and were recorded as warranty expense when incurred.
In December 2022, Western Company became aware of
an engineering flaw in a product that poses a potential
risk of injury. As a result, a product recall appears
inevitable. This move would likely cost the entity
P1,500,000.
In November 2022, the City of Manila filed suit against
Western Company asking civil penalties and injunctive
relief for violations of clean water laws.
Western Company reached a settlement with the city
government authorites to pay P4,200,000 in penalties on
February 15, 2023.
Western Company is the plaintiff in a P4,000,000 lawsuit
filed against a customer for costs and lost profit from
contracts rejected in 2022.
The lawsuit is in final appeal and attorneys advised that
it is probable that Western Company will be awarded
P3,000,000.
Required:
Prepare the appropriate journal entries that should be
recorded as a result of each of these contingencies. If no
journal entry is indicated, state the reason why.
Pro
Barc
cont
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