During 2020, Marian Company was sued by a competitor for P5,000,000 for infringement of a patent. Based on the advice of the legal counsel, the entity accrued the sum of P3,000,000 as a provision in the financial statements for the year ended December 31, 2020. Subsequently, on March 15, 2021, the Supreme Court decided in favor of the party alleging infringement of the patent and ordered the defendant to pay the aggrieved party a sum of P3,500,000. The financial statements were prepared by the entity's management on February 15, 2021 and approved by the Board of Directors on March 31, 2021. Questions: 1. When is the date of authorization for issue of the 2020 financial statements? 2. What amount should be recognized as accrued liability on December 31, 2020 to reflect the event after the reporting period?

During 2020, Marian Company was sued by a competitor for P5,000,000 for infringement of a patent. Based on the advice of the legal counsel, the entity accrued the sum of P3,000,000 as a provision in the financial statements for the year ended December 31, 2020. Subsequently, on March 15, 2021, the Supreme Court decided in favor of the party alleging infringement of the patent and ordered the defendant to pay the aggrieved party a sum of P3,500,000. The financial statements were prepared by the entity's management on February 15, 2021 and approved by the Board of Directors on March 31, 2021. Questions: 1. When is the date of authorization for issue of the 2020 financial statements? 2. What amount should be recognized as accrued liability on December 31, 2020 to reflect the event after the reporting period?

CONCEPTS IN FED.TAX.,2020-W/ACCESS

20th Edition

ISBN:9780357110362

Author:Murphy

Publisher:Murphy

Chapter6: Business Expenses

Section: Chapter Questions

Problem 54P

See similar textbooks

Similar questions

During 2018, Rosanna Company was sued by a competitor for P5,000,000 for infringement of a patent. Based on the advice of the legal counsel, the entity accrued the sum of P3,000.000 as a provision on December 31, 2018. Subsequently, on March 15, 2019, the Supreme Court decided in favor of the party alleging infringement of the patent and ordered the defendant to pay the aggrieved party a sum of P3,500,000. The financial statements were prepared by management on February 15, 2019 and approved by the board of directors on March 31, 2019. The financial statements were prepared by management on February 15, 2019 and approved by the board of directors on March 31, 2019. What amount should be adjusted on December 31, 2018 in relation to this event?
During 2021, Angela Inc. was sued by a competitor for P5,000,000 for infringement of a patent. Based on the advice of the legal counsel, the entity accrued the sum of P3,000,000 as a provision on December 31, 2021. Subsequently on March 15, 2022, the Supreme Court decided in favor of the party alleging infringement of the patent and ordered the defendant to pay the aggrieved party the sum of P3,500,000. The financial statements were prepared by management on February 15, 2022 and approved by the board of directors on March 31, 2022. What amount should be adjusted on December 31, 2022 in relation to this event?A. 1,000,000B. 1,500,000C. 500,000D. 2,000,000
Tyeso Company entered into a lawsuit on December 25, 2020 and recognized on the same date a provision of P2,000,000. On February 28, 2021, when the financial statements for the year ended December 31, 2020 had not yet been authorized for issue, the case was settled and the court decided the final total damages to paid by the entity at P3,000,000. In addition, the Company has a loan payable of P2,000,000 due on June 30, 2021. On January 1, 2021, before the authorization of the issuance of financial statements, the bank agreed to refinance the loan, extending the maturity to June 30, 2023. Also, another loan amounting to P7,000,000 due on December 1, 2021 was obtained by the Company from BDO. TYESO Company has the discretion to refinance or roll over the loan for at least twelve months from December 31, 2021. 1. Compute for the current liability to be presented in the financial position a. P12 million b. P10 million c. P5 million d. P4 million Answer: 2. Compute for…
During 2023, Lowry Company was used by a competitor for P5,000,000 infringement suit of a trademark. Based on the legal counsel’s advice, Lowery accrued the sum of P3,000,000 as a provision. On February 15, 2024, the Supreme Court decided in favor of the party alleging the infringement and ordered the defendant to pay the aggrieved party a sum of P3,500,000. The financial statements of Lowry were approved by the BOD for issue on February 20, 2024. What amount should the Company accrue as provision for the year ended December 31, 2023?
Pitt Company is the defendant in a lawsuit filed by Hoffman in 2020 disputing the validity of a copyright held by Pitt. At December 31, 2020, Pitt determined that Hoffman would probably be successful against Pitt for an estimated amount of $800,000. Appropriately, an $800,000 loss was accrued by a charge to income of Pitt for the year ended December 31, 2020. On December 15, 2021, Pitt and Hoffman agreed to a settlement providing for cash payment of $500,000 by Pitt to Hoffman and transfer of Pitt's copyright to Hoffman. The carrying amount of the copyright on Pitt's accounting records was $120,000 at December 15, 2021. a. What would be the effect of the settlement of this liability on Pitt's income before income tax in 2021? b. Record the entry on December 15, 2021 for Pitt Company.
Tang company is the defendant in a lawsuit filed by wong in 2019 disputing the validity of copyright held by tang. In December 31, 2019, tang determined that wong would probably be successful for an estimated amount of P600,000. Appropriately, a P600,000 loss was accrued by a charge to income for the year ended December 31, 2019. On December 31, 2020, tang and wong agreed to a settlement providing for cash payment of P375,000 and transfer to tang's copyright to wong. The carrying amount of the copyright on tang’s accounting records was P90,000 on December 31, 2021. What would be the increased in tang’s income before tax in 2020 due to this settlement?answer this with detailed solution.
Blette Company is the defendant in a lawsuit filed by Kale in 2021 disputing the validity of a copyright held by Blette. At December 31, 2021, Blette determined that Kale would probably be successful against Tone for an estimated amount of $420,000. Appropriately, a $420,000 loss was accrued by a charge to income for the year ended December 31, 2021. On December 15, 2022, Blette and Kale agreed to a settlement providing for a cash payment of $270,000 by Blette to Kale, and the transfer of Blette's copyright to Kale. The carrying amount of the copyright on Blette's accounting records was $80,000 at December 15, 2022. What would be the effect of the settlement on Blette's income before income tax in 2022? $150,000 increase $70,000 increase No effect $80,000 decrease
corcese Inc. is involved in a lawsuit at December 31, 2020. (a) Prepare the December 31 entry assuming it is probable that Scorcese will be liable for $900,000 as a result of this suit. (b) Prepare the December 31 entry, if any, assuming it is not probable that Scorcese will be liable for any payment as a result of this suit.
On March 1, 2019, a suit was filed against Eloise Company for patent infringement. Eloise'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, Eloise's legal counsel is of the opinion that P600,000 is a better estimate than amount in the range. any other 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?
ROSE Company entered into a lawsuit on December 20, 2021 and recognized on the same date a provision of ₱2,000,000. On February 28, 2022, when the financial statements for the year ended December 31, 2021 had not yet been authorized for issue, the case was settled and the court decided the final total damages to be paid by the entity at ₱3,000,000. In addition, the Company has a loan payable of ₱2,000,000 due on June 30, 2022. On January 1, 2022, before the authorization of the issuance of financial statements, the bank agreed to refinance the loan, extending the maturity to June 30, 2024. Also, another loan amounting to ₱7,000,000 due on December 1, 2022 was obtained by the Company on January 2, 2022 from BPI. ROSE Company has the discretion to refinance or roll over the loan for at least twelve months from December 31, 2022. At what amount should the current liability be presented in the statement of financial position? ₱ 12,000,000 ₱…
ROSE Company entered into a lawsuit on December 20, 2021 and recognized on the same date a provision of ₱2,000,000. On February 28, 2022, when the financial statements for the year ended December 31, 2021 had not yet been authorized for issue, the case was settled and the court decided the final total damages to be paid by the entity at ₱3,000,000. In addition, the Company has a loan payable of ₱2,000,000 due on June 30, 2022. On January 1, 2022, before the authorization of the issuance of financial statements, the bank agreed to refinance the loan, extending the maturity to June 30, 2024. Also, another loan amounting to ₱7,000,000 due on December 1, 2022 was obtained by the Company on January 2, 2022 from BPI. ROSE Company has the discretion to refinance or roll over the loan for at least twelve months from December 31, 2022. REQUIRED: 1. At what amount should the current liability be presented in the statement of financial position? 2. At what amount should the non-current…
ABC Company is the defendant in a patent infringement suit filed by XYZ Company in 2020. At Dec. 31, 2020, ABC determined that XYZ would probably be successful against ABC for an estimated amount of P5 million. ABC appropriately accrued the loss for the year ended Dec. 31, 2020. On Oct. 31, 2021, ABC Company and XYZ Company agreed to a settlement for a cash payment of P3.8 million and the transfer of ABC Company's patent to XYZ Company. On such date, the patent had a carrying value of P2 million. What would be the effect of this settlement on ABC's profit for the year ended Dec. 31, 2022?