PROBLEM 17: You are engaged to audit the December 31, 2012, financial statements of LIZA COMPANY, a manufacturer of household appliances. Your audit disclosed the following situations. a. In June 2012, the company began producing and selling a new line of dishwasher. By the end of the year, it had sold 120,000 to various dealers for P15,000 each. The product was sold under a l-year warranty, and the company estimates warranty costs to be P750 per dishwasher. Liza had paid out P30 million in warranty expenses as of December 31, 2012, which also the amount shown as warranty expense in its income statement for the current year. b. In response to your letter of audit inquiry, Liza's lawyer informed you that the company is involved in a lawsuit for violation environmental laws regulating hazardous waste. Although the litigation is pending, Liza's lawyer is certain that Liza will most probably have to pay cleanup costs and fines of P5,500,000. Liza neither accrued nor disclosed this loss in the financial statements. c. Liza is the defendant in a patent infringement suit by Mona Bang over Liza's use of a hydraulic compressor in several of its manufactured appliances. Liza's lawyer informed you that if the suit goes against your audit client, the loss may be as much as P10 millian. However, the lawyer believes that the loss of this suit is only possible. Liza did not in any way disclose this pending litigation in its financial statements. 1. What amount of warranty expense should be shown on Liza's income statement for the year ended December 31, 2012? A. P30,000,000 B. PO 2. What amount of warranty liability should be shown on Liza's statement of financial position as of December 31, 2012? A. P60,000,000 B. P90,000,000 3. What amount of lawsuit liability should be reported as a provision on Liza's December 31, 2012, statement of financial position? A. P10,000,000 B. P5,500,000 C. P60,000,000 D. P90,000,000 C. P30,000,000 D. PO C. P15,500,000 D. PO
PROBLEM 17: You are engaged to audit the December 31, 2012, financial statements of LIZA COMPANY, a manufacturer of household appliances. Your audit disclosed the following situations. a. In June 2012, the company began producing and selling a new line of dishwasher. By the end of the year, it had sold 120,000 to various dealers for P15,000 each. The product was sold under a l-year warranty, and the company estimates warranty costs to be P750 per dishwasher. Liza had paid out P30 million in warranty expenses as of December 31, 2012, which also the amount shown as warranty expense in its income statement for the current year. b. In response to your letter of audit inquiry, Liza's lawyer informed you that the company is involved in a lawsuit for violation environmental laws regulating hazardous waste. Although the litigation is pending, Liza's lawyer is certain that Liza will most probably have to pay cleanup costs and fines of P5,500,000. Liza neither accrued nor disclosed this loss in the financial statements. c. Liza is the defendant in a patent infringement suit by Mona Bang over Liza's use of a hydraulic compressor in several of its manufactured appliances. Liza's lawyer informed you that if the suit goes against your audit client, the loss may be as much as P10 millian. However, the lawyer believes that the loss of this suit is only possible. Liza did not in any way disclose this pending litigation in its financial statements. 1. What amount of warranty expense should be shown on Liza's income statement for the year ended December 31, 2012? A. P30,000,000 B. PO 2. What amount of warranty liability should be shown on Liza's statement of financial position as of December 31, 2012? A. P60,000,000 B. P90,000,000 3. What amount of lawsuit liability should be reported as a provision on Liza's December 31, 2012, statement of financial position? A. P10,000,000 B. P5,500,000 C. P60,000,000 D. P90,000,000 C. P30,000,000 D. PO C. P15,500,000 D. PO
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
Related questions
Question
Transcribed Image Text:PROBLEM 17:
You are engaged to audit the December 31, 2012, financial statements of LIZA COMPANY, a
manufacturer of household appliances. Your audit disclosed the following situations.
a. In June 2012, the company began producing and selling a new line of dishwasher. By the
end of the year, it had sold 120,000 to various dealers for P15,000 each. The product
was sold under a l-year warranty, and the company estimates warranty costs to be
P750 per dishwasher. Liza had paid out P30 million in warranty expenses as of
December 31, 2012, which also the amount shown as warranty expense in its income
statement for the current year.
b. In response to your letter of audit inquiry, Liza's lawyer informed you that the company
is involved in a lawsuit for violation environmental laws regulating hazardous waste.
Although the litigation is pending, Liza's lawyer is certain that Liza will most probably
have to pay cleanup costs and fines of P5,500,000. Liza neither accrued nor disclosed
this loss in the financial statements.
c. Liza is the defendant in a patent infringement suit by Mona Bang over Liza's use of a
hydraulic compressor in several of its manufactured appliances. Liza's lawyer informed
you that if the suit goes against your audit client, the loss may be as much as P10
million. However, the lawyer believes that the loss of this suit is only possible. Liza did
not in any way disclose this pending litigation in its financial statements.
1. What amount of warranty expense should be shown on Liza's income statement for the
year ended December 31, 2012?
A. P30,000,000
C. P60,000,000
D. P90,000,000
B. PO
2. What amount af warranty liability should be shown on Liza's statement of financial positian
as of December 31, 2012?
A. P60,000,000
B. P90,000,000
C. P30,000,000
D. PO
3. What amount of lawsuit liability should be reported as a provision on Liza's December 31,
2012, statement of financial position?
A. P10,000,000
B. P5,500,000
C. P15,500,000
D. PO
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
This is a popular solution!
Trending now
This is a popular solution!
Step by step
Solved in 4 steps
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.Recommended textbooks for you
Accounting
Accounting
ISBN:
9781337272094
Author:
WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.
Publisher:
Cengage Learning,
Accounting Information Systems
Accounting
ISBN:
9781337619202
Author:
Hall, James A.
Publisher:
Cengage Learning,
Accounting
Accounting
ISBN:
9781337272094
Author:
WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.
Publisher:
Cengage Learning,
Accounting Information Systems
Accounting
ISBN:
9781337619202
Author:
Hall, James A.
Publisher:
Cengage Learning,
Horngren's Cost Accounting: A Managerial Emphasis…
Accounting
ISBN:
9780134475585
Author:
Srikant M. Datar, Madhav V. Rajan
Publisher:
PEARSON
Intermediate Accounting
Accounting
ISBN:
9781259722660
Author:
J. David Spiceland, Mark W. Nelson, Wayne M Thomas
Publisher:
McGraw-Hill Education
Financial and Managerial Accounting
Accounting
ISBN:
9781259726705
Author:
John J Wild, Ken W. Shaw, Barbara Chiappetta Fundamental Accounting Principles
Publisher:
McGraw-Hill Education