Fundamentals Of Financial Accounting
6th Edition
ISBN: 9781259864230
Author: PHILLIPS, Fred, Libby, Robert, Patricia A.
Publisher: Mcgraw-hill Education,
expand_more
expand_more
format_list_bulleted
Concept explainers
Question
Chapter 10, Problem 10MC
To determine
To identify: The correct option related to
Expert Solution & Answer
Want to see the full answer?
Check out a sample textbook solution
Students have asked these similar questions
Big Hitter Corp. is facing a class-action lawsuit in theupcoming year. It is possible, but not probable, that thecompany will have to pay a settlement of approximately$2,000,000 in the upcoming year. How would this fact bereported, if at all, in the financial statements prepared atthe end of the current month using GAAP?a. Report $2,000,000 as a current liability.b. Report $2,000,000 as a long-term liability.c. Describe the potential liability in the notes to thefinancial statements.d. Reporting is not required in this case.
Cocoa Corporation is preparing its December 31, 2023 financial statements. On March 1, the company settled a lawsuit for which it had accrued a contingent liability (loss) of $1,600,000. The amount of the settlement was $1,750,000. The financial statements were issued on March 10, 2024. Which of the following is correct regarding the settlement of the lawsuit?
Question 9Answer
a.
The additional loss of $150,000 will be reported in the 2024 financial statements.
b.
No contingent liability will be reported on the 2023 Balance Sheet since the suit has been settled.
c.
This is not a recognized subsequent event because this information about the settlement was not known at year-end. Therefore, no adjustment is required.
d.
Cocoa should make an adjusting entry to adjust the estimated loss to the actual amount. Net income for 2023 will decrease by $150,000 (ignoring taxes).
A lawsuit has been filed against North Shore Company. As year-end, the company’s attorney believes that there is an 60% likelihood that the company will be found liable. The attorney believes that the estimated range of the liability is between $150,000 and $300,000 and that all amounts within the range are equally likely.
Unrelated to this lawsuit, the company has settled an insurance claim before year-end in the amount of $72000. The company will receive the money subsequent to year-end.
What would be the amount, if any, that North Shore would record on the balance sheet related to the lawsuit under IFRS and US GAAP?
What amount, if any, would North Shore record related to the insurance settlement under IFRS and US GAAP?
Chapter 10 Solutions
Fundamentals Of Financial Accounting
Ch. 10 - Prob. 1QCh. 10 - Prob. 2QCh. 10 - What three factors influence the dollar amount...Ch. 10 - Prob. 4QCh. 10 - Why is Deferred Revenue considered a liability?Ch. 10 - Prob. 6QCh. 10 - Prob. 7QCh. 10 - If a company has a long-term loan that has only...Ch. 10 - What are the reasons that some bonds are issued at...Ch. 10 - Prob. 10Q
Ch. 10 - Will the stated interest rate be higher than the...Ch. 10 - What is the carrying value of a bond payable?Ch. 10 - What is the difference between a secured bond and...Ch. 10 - Prob. 14QCh. 10 - Prob. 15QCh. 10 - Prob. 16QCh. 10 - Prob. 17QCh. 10 - (Supplement D) Over the period to maturity, why...Ch. 10 - Which of the following best describes Accrued...Ch. 10 - Prob. 2MCCh. 10 - Prob. 3MCCh. 10 - Prob. 4MCCh. 10 - Which of the following does not impact the...Ch. 10 - Which of the following is false when a bond is...Ch. 10 - To determine if a bond will be issued at a...Ch. 10 - A bond is issued at a price of 103 and retired...Ch. 10 - In a recent year. Land O Lakes, Inc., reported (in...Ch. 10 - Prob. 10MCCh. 10 - Recording Unearned Revenues A local theater...Ch. 10 - Prob. 2MECh. 10 - Prob. 3MECh. 10 - Reporting Payroll Tax Liabilities Refer to M10-3....Ch. 10 - Reporting Current and Noncurrent Portions of...Ch. 10 - Recording a Note Payable Greener Pastures...Ch. 10 - Reporting Interest and Long-Term Debt, Including...Ch. 10 - On February 6, 2017, the NYSE bond directory...Ch. 10 - E-Tech Initiatives Limited plans to issue...Ch. 10 - Repeat M10-9 assuming the bonds are issued at...Ch. 10 - Recording Bonds Issued at Face Value Schlitterbahn...Ch. 10 - Prob. 12MECh. 10 - Computing the Debt-to-Assets Ratio and the Times...Ch. 10 - Analyzing the Impact of Transactions on the...Ch. 10 - Prob. 15MECh. 10 - Prob. 16MECh. 10 - Prob. 17MECh. 10 - Prob. 18MECh. 10 - Prob. 19MECh. 10 - Prob. 20MECh. 10 - Prob. 21MECh. 10 - Determining Financial Statement Effects of...Ch. 10 - Recording a Note Payable through Its Time to...Ch. 10 - Recording Payroll Costs McLoyd Company completed...Ch. 10 - Recording Payroll Costs with and without...Ch. 10 - Prob. 5ECh. 10 - Prob. 6ECh. 10 - Preparing Journal Entries to Record Issuance of...Ch. 10 - Preparing Journal Entries to Record Issuance of...Ch. 10 - Prob. 9ECh. 10 - Calculating and Interpreting the Debt-to-Assets...Ch. 10 - Prob. 11ECh. 10 - Prob. 12ECh. 10 - Prob. 13ECh. 10 - Prob. 14ECh. 10 - (Supplement 10B) Recording the Effects of a...Ch. 10 - Prob. 16ECh. 10 - Prob. 17ECh. 10 - Determining Financial Effects of Transactions...Ch. 10 - Recording and Reporting Current Liabilities with...Ch. 10 - Recording and Reporting Current Liabilities...Ch. 10 - Comparing Bonds Issued at Par, Discount, and...Ch. 10 - Determining Financial Statement Reporting of...Ch. 10 - Prob. 6CPCh. 10 - Prob. 7CPCh. 10 - Prob. 8CPCh. 10 - Prob. 9CPCh. 10 - Prob. 10CPCh. 10 - Determining Financial Effects of Transactions...Ch. 10 - Recording and Reporting Current Liabilities with...Ch. 10 - Recording and Reporting Current Liabilities...Ch. 10 - Comparing Bonds Issued at Par, Discount, and...Ch. 10 - Prob. 5PACh. 10 - Prob. 6PACh. 10 - Prob. 7PACh. 10 - Prob. 8PACh. 10 - Prob. 9PACh. 10 - Prob. 1PBCh. 10 - Recording and Reporting Current Liabilities with...Ch. 10 - Prob. 3PBCh. 10 - Prob. 4PBCh. 10 - Recording and Explaining the Early Retirement of...Ch. 10 - Prob. 6PBCh. 10 - Prob. 7PBCh. 10 - Prob. 8PBCh. 10 - Zarina Corp. signed a new installment note on...Ch. 10 - Prob. 1COPCh. 10 - Prob. 1SDCCh. 10 - Prob. 2SDCCh. 10 - Prob. 4SDCCh. 10 - Prob. 5SDCCh. 10 - Prob. 6SDCCh. 10 - Prob. 7SDCCh. 10 - Prob. 8SDCCh. 10 - (Supplement 10C) Preparing a Bond Amortization...Ch. 10 - Nicole thinks that her business, Nicole’s Getaway...
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.Similar questions
- DAC, Inc. is being sued by WFT Corp.for $5,000,000. At the end of the year, DAC feels it is reasonably possible that it will pay $5,000,000 at some point in the following year. What should DAC and WFT record at the end of the year concerning the lawsuit?arrow_forwardSuits for damages totaling P8,000,000 are pending against Freddy. The company lawyers advised that losses on such suits are not probable. However, company policy has mandated authorization that provision be made in the accounts for any possible loss up to P5,000,000. The suit was settled in 2021 and payment of P7,000,000 was made. Required: Prepare the entry to record the contingent liabilityarrow_forwardArcand Advisers is being sued by a former customer. Arcand's lawyers say that it is possible, but not probable, that the company will lose the lawsuit and that the trial should last approximately 18 more months. Should Arcand lose, it will most likely have to pay approximately $750,000. How should this lawsuit be reported on the financial statements? Oa. Current liability of $750,000 and expense of $750,000 Ob. Long-term liability of $750,000 and expense of $750,000 Oc. No effect on the statement of financial position or statement of earnings, but disclosed in the notes to the financial statements Od. No disclosure is requiredarrow_forward
- Beautiful Company is involved in litigation regarding a faulty product sold in a prior year during 2021. The company has consulted with its attorney and determined that it is possible that they may lose the case. The attorneys estimated that there is a 40% chance of losing. If this is the case, their attorney estimated that the amount of any payment would be P500,000.How much is the Provision to be reported at December 31, 2021?arrow_forwardngent Rover Ltd has a year-end of 30 June 2022. The accountant has prepared the following schedule with details of several events and their proposed treatment in the financial statements. Event Proposed Treatment The notification of a customer's Write off $30,000 debt as it is irrecoverable. bankruptcy who owes $25,000 on 30 June 2022 and now owes $30,000. The liquidator has indicated that the debt will not be recoverable. A major production plant was destroyed by fire on 1 July 2022. No adjustment or reference to the issue is required as the fire took place after the year-end. Liability for dividends payable recognised. Ordinary dividends declared on 1 August 2022 regarding profits for the period ended 30 June 2022. Discovery of a significant fraud on 15 July 2022, resulting in losses to the company. No adjustment is required as the fraud was discovered after the period end. Required: In each of the instances above, explain whether the accountant has proposed the correct treatment…arrow_forwardABC at the year end has the following outside lawsuits: A suit that is probable of loss with an estimated loss of $50,000. A suit that is probable of winning with an estimated gain of $20,000 A suit that is remote of losing with an estimated loss of $10,000. What amount of Contingent liability would ABC report at year end? Select an answer and submit. For keyboard navigation, use the up/down arrow keys to select an answer. a $30,000 b $40,000 c $50,000 d $60,000arrow_forward
- Tender Foot, Inc., is involved in litigation regarding a faulty product sold in a prior year. The company has consulted with its attorney and determined that it is possible that it may lose the case. The attorney estimated that there is a 50% chance of losing. The attorney estimated that the amount of any payment would be between P500,000 and P800,000 with P500,000 as the best estimate. How much should be recognized as a liability?arrow_forwardDuring 2019, Maricar Company guaranteed a supplier’s P5,000,000 loan from a bank. On October 1, 2020. Maricar was notified that the supplier had defaulted on the loan and filed for bankruptcy protection. The counsel believes Maricar will probably have to pay between P2,500,000 and P4,500,000 under its guaranty. As a result of the supplier’s bankruptcy, Maricar entered into a contract in December 2020, to retool its machines so that Maricar could accept parts from other suppliers. Retooling costs are estimated to be P3,000,000. What amount should Maricar report as a liability in its December 31, 2020 balance sheet? Group of answer choices A.) 4,500,000 B.) 5,000,000 C.) 5,500,000 D. ) 2,500,000arrow_forward6. Buwis Buhay Incorporated had several outstanding obligations on December 31, 2019. The brief descriptions listed below can be ascertained from these liabilities. What is the correct treatment for the court case that happened on June 2019? • in June 2019, Buwis Buhay was involved in a court case amounting to P10,000,000. The attorney assessed that it is probable that the company will win the case with P4,500,000 as the best estimate of the reward. • In August 2019, Baguio City brought an action against the company for polluting the surrounding rivers with its waste products costing P5,000,000. It is probable that Baguio City will be successful but the amount of damages Buwis Buhay might have to pay is not to exceed P2,500,000. •In December 2019, another litigation case amounting to P20,000,000 was filed against Buwis Buhay for injuring pedestrians due to its renovation projects within the premise. This court case is seen to have remote likelihood of occurrence because the…arrow_forward
- DAC, Inc. is being sued by WFT Corp.for $5,000,000. At the end of the year, DAC feels it is probable that it will pay $5,000,000 at some point in the following year. What should DAC and WFT record at the end of the year concerning the lawsuit? Select one: a. DAC does not record any loss; WFT records a $5,000,000 gain. b. Neither company records a loss or gain c. DAC records a $5,000,000 loss; WFT records a $5,000,000 gain d. DAC records a $5,000,000 loss; WFT does not record any gainarrow_forwardDuring 2020 Chua Company became involved in a tax dispute with the BIR. At December 31, 2020, Chua’s tax advisor believed that an unfavorable outcome was probable and a reasonable estimate of additional taxes was 500,000. After the 2020 financial statements were issued, Chua received and accepted a BIR settlement offer of P550,000. What amount of accrued liability would Chua have reported in its December 31, 2020 balance sheet? Group of answer choices 0 500,000 650,000 550,000arrow_forwardDodd Corp. is preparing its December 31 financial statements and must determine the proper accounting treatment for the following situations • For the year ended December 31, Dodd has a loss carry forward of $180,000 available to offset future taxable income, However, there are no temporary differences. On December 30, Dodd received a $200,000 offer for its patent Dodd's management is considering whether to sell the patent. The offer expires on February 28 of the next year. The patent has a carrying amount of $100,000 at December 31 Assume a current and future income tax rate of 21 percent. In its income statement, Dodd should recognize an increase in net income of O $0 O $37,800 $79,000arrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
