8:20 il.l f O f85Quiz Exercises:Problem 1: Voi Company provided the following facts regarding pending litigation on December 31, 2020:1. The entity is defending against a first lawsuit and believes there is a 51% chance it will lose in court. Theentity estimates that damages will be damages amounting to Php 1,000,000.002. The entity is defending against a second lawsuit for which management believes it is virtually certain tolose in court. If it losses, management estimates damages will amount in between Php 3,000,000.00 toPhp 5,000,000.00.3. The entity is defending against a third lawsuit, but the relevant loss will occur in the future. The presentvalues of the endpoints of the range are Php 1,500,000.00 and Php 2,500,000.00. The managementbelieves the effects of the time value of money on these amounts are material but also believes thetiming of these amounts are uncertain4. The entity is defending against a fourth lawsuit and believes there is only a 25% chance it will lose incourt. If the entity loses, management believes damages will likely be from Php 3,000,000.00 to Php4,000,000.00, with each amount in that range equally likely to occur.Required: Determine if each of the above cases requires a provision or not, explain why.Problem 2: Janmark Company provided the following selected transactions related to contingencies. Thereporting 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. OnDecember 31, 2020, lawyers advised that it was not probable that the entity would lose Php2,000,000.00 in an unfavorable outcome. On February 15, 2021, judgment was rendered against theentity in the amount of Php 4,000,000.00 plus interest of Php 200,000.000. The entity does not plan toappeal the verdict.• Snce August 2020, the entity has been involved in a labor dispute. Negotiation between the entity andthe union has not produced a settlement. Since January 2020, strikes have been ongoing at thesefacilities. It is virtually certain that material cost wil be incurred, but the resultant cost cannot beadequately measured.The entity is the defendant in a lawsuit filed in January 2021 in which the plaintiff seeks Php4,000,000.00 as an adjustment to the purchase price related to the sale of the entity's hardwooddivision in 2020. The lawsuit aleges 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 butthat it is extremely unlikely it could lose the Php 5,000,000.00 asked for.• On March 1, 2021, the provincial govemment investigates the possibility of environmental violationsby the entity but has not proposed a penalty assessment. The management feels an assessment isreasonably 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 3: On January 1, 2020, Petron Company purchased an oil tankerdepot at the costof Php 7,000,000.0o.The entity is expected to operate the depot for five (5) years, after which it is legally required to dismantle thedepot and remove the underground storage tanks. The oil tanker depot is depreciated using the straight-inemethod with no residual value. It is reliably estimated that the cost ofdecommissioning the depot will amountto Php 1,500,000.00. The appropriate discount rate is 10%. The present value of 1 at 10% for five periods is0.62.At the beginning of 2022, the entity reliably estimated that the carrying amount of the decommissioningliability is Php 120,000.00 under what it should be. The discount rate remains at 10%.On December 31, 2024, after five years of operating, the entity paid a demolition entity to dismantle the depotat a price of Php 1,700,000.00.Required: Prepare all the required annual journal entries from January 1, 2020, up to December 31, 2024.

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