Chapter 4 - Lecture notes 3-10 PDF

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Chapter 4Provisions, Contingent Liabilities & Contingent AssetsNAME: Date: Professor: Section: Score:QUIZ: In 20x1, an entity, a defendant, recognized a ₱100,000 provision for estimated losses from a pending lawsuit. In 20x2, the entity wins the lawsuit and pays nothing. Which of the followi...

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Chapter 4 Provisions, Contingent Liabilities & Contingent Assets NAME: Pr of es s or :

Sec t i on:

Dat e: Sc or e:

QUI Z: 1. I n 20x1,an e nt i t y ,ade f e ndant ,r e c ogni ze d a₱100, 000pr ovi s i on f ore s t i ma t ed l os s esf r om a pe ndi ngl a ws ui t .I n20x2 ,t hee nt i t ywi nst hel a ws ui tandpa ysnot hi ng.Whi c hoft hef ol l owi ng s t a t e me nt si sc or r ec ti n20x2? a . Thee nt i t ys hal lr es t a t ei t s20x1financ i als t at e me nt st or emovet hepr ovi s i on. b. Thee nt i t ys hal lr ec ogni zeagai nof₱100 , 000i n20x 2. c . Thee nt i t ys hal lr ec ogni zea₱100, 000de duc t i oni ni t s20x2e xpens es . d. Thee nt i t ys hal lonl ydi s c l os et hee ve nti ni t s20x2financ i als t a t ement s . 2. Theboar dofdi r ec t or sofABC I nc .dec i de d onDe c embe r15,20XX,t owi ndupi nt er na t i onal oper a t i onsi nt heFarEas tandmovet he mt oAus t r al i a.Thedec i s i onwa sba s edonadet ai l ed f or malpl anofr e s t r uc t ur i ngasr e qui r e dbyP AS37 .Thi sdec i s i onwasc onve ye dt oal lwor ke r s and mana ge mentper s onnela tt he he adquar t er si n Eur ope .The c os tofr e s t r uc t ur i ng t he oper a t i onsi nt heFarEas taspert hi sde t ai l e dpl anwasP2mi l l i on.How s houl dABC I nc .t r ea t t hi sr e s t r uc t ur i ngi ni t sfinanc i als t a t e me nt sf ort heye ar endDe c e mbe r31, 20XX? a . Bec aus eABCI nc .hasnotannounc e dt her e s t r uc t ur i ngt ot hos eaffe c t edbyt hede c i s i onand t hushasnotr ai s e dane xpec t a t i ont ha tABCI nc . wi l lac t ual l yc ar r youtt her es t r uc t ur i ng( and asnoc ons t r uc t i veobl i gat i onhasar i s e n) , onl ydi s c l os et her e s t r uc t ur i ngdec i s i onandt hec os t ofr e s t r uc t ur i ngof₱2mi l l i oni nf oot not est ot hefinanc i als t a t e me nt s . b. Rec ogni zeapr ovi s i onf orr e s t r uc t ur i ngs i nc et heboar dofdi r e c t or shasappr ovedi tandi t hasbe e nannounc edi nt hehe adquar t e r sofABCI nc .i nEur ope . c . Ment i ont hede c i s i ont or e s t r uc t ur eandt hec os ti nvol vedi nt hec hai r man’ ss t a t e menti nt he annualr e por ts i nc ei tadec i s i onoft heboar dofdi r e c t or s . d. Bec aus et her es t r uc t ur i nghasnotc omme nc edbef or eye ar e nd,bas e donpr ude nc e ,wai tunt i l ne xtye aranddonot hi ngi nt hi sye ar ’ sfinanc i als t a t e me nt s . 3. Whi c hoft hef ol l owi ngi st hepr operwa yt or epor tagai nc ont i nge nc y? a . Asanac c r ue damount . b. Asde f e r r edr e venue . c . Asanac c ountr e c e i vabl ewi t haddi t i onaldi s c l os ur ee xpl ai ni ngt hena t ur eoft hec ont i ngenc y . d. Asadi s c l os ur eonl y . 4. Whi c hoft hef ol l owi ngc ont i ngenc i e snee d no tbedi s c l os edi nt hefinanc i als t a t ement sort he not e st her et o? a . Pr obabl el os s e snotr eas onabl ye s t i mabl e b. Envi r onme nt all i abi l i t i e st ha tc annotber e as onabl yes t i ma t ed c . Guar ant ee sofi nde bt e dne s sofot her s d. Al loft hes emus tbedi s c l os e d. 5. Tor e c or danas s e tr et i r e mentobl i ga t i on( ARO) ,t hec os tas s oc i a t e dwi t ht heAROi s a .e xpens ed. b. i nc l udedi nt hec ar r yi ngamountoft her e l a t edl ongl i vedas s e t .

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c .i nc l udedi nas e par a t eac c ount . d. noneoft hes e . 6. Pr ovi s i onss hal lber e c ogni ze df oral lt hef ol l owi ng,e x c ept a .Cl e ani ngupc os t sofc ont ami na t edl and whe nanoi le nt i t yhasapubl i s he d pol i c yt ha ti twi l l unde r t aket oc l ea nupal lc ont ami na t i ont ha ti tc aus e s . b. Re c t i fic at i onc os t sr e l a t i ngt ode f ec t i vepr oduc t sal r e adys ol d. c . Fut ur er e f ur bi s hme ntc os t sduet oi nt r oduc t i onofane wc omput e rs ys t e m. d. Re s t r uc t ur i ngc os t saf t e rabi ndi ngs al ea gr ee me nthasbe e ns i gne d. 7.Ac ompet i t orhass ue dane nt i t yf orunaut hor i ze dus eofi t spa t ent edt e c hnol ogy .Theamountt ha t t heent i t yma yber equi r e dt opa yt ot hec ompet i t ori ft hec ompe t i t ors uc c ee dsi nt hel a ws ui ti s de t er mi nabl ewi t hr e l i abi l i t y ,andac c or di ngt ot hel e galc ouns e li ti sl e s st hanpr obabl ebutmor e t hanr emot et ha tanout flow oft her e s our c e swoul dbenee de dt ome ett heobl i gat i on.Theent i t yt ha t wass ue ds hal la tye ar e nd a . Re c ogni zeapr ovi s i onf ort hepos s i bl eobl i gat i on b.Makenopr ovi s i onordi s c l os ur eandwai tunt i lt hel a ws ui ti sfinal l ydec i de dandt henexpens et he amountpai dons e t t l e me nt , i fany . c .Se ta s i de ,asanappr opr i a t i on,ac ont i nge nc yr e s e r ve ,ana mountbas e dont hebe s te s t i ma t eoft he pos s i bl el i abi l i t y . d. Makeadi s c l os ur eoft hepos s i bl eobl i ga t i oni nt henot e st ofinanc i als t a t ement s . 8.Anent i t yhasbe e ns er ved al e galnot i c ea tye ar e nd byt heDe par t me ntofEnvi r onme ntand Na t ur alRe s our c est ofits mokede t ec t or si ni t sf ac t or yonorbe f or emi ddl eofne xtye ar .Thec os tof fit t i ngs mokedet e c t orc anbeme as ur edr e l i abl y . How s houl dt hee nt i t yt r e a tt hi satyea r e nd? a . I gnor et hi sf orpur pos esoft hefinanc i als t a t e me nt sa tye ar end. b. Re c ogni zeapr ovi s i onf ort hec ur r entye are qualt oonehal fonl yoft hee s t i ma t e damount . c . Re c ogni zeapr ovi s i onf ort hec ur r entye are qualt ot hee s t i ma t e damount . d.Nopr ovi s i on i sr ec ogni ze da tye ar e nd be c aus et he r ei snopr es e ntobl i ga t i on f ort hef ut ur e e xpe ndi t ur ess i nc et he ent i t yc an a voi dt he f ut ur ee xpe ndi t ur e s by c hangi ng t he me t hod of oper a t i onsbutdi s c l os ur ei sr e qui r e d. 9.How s houl dac ont i nge ntl i abi l i t yber e por t e di nt hefinanc i als t a t eme nt swhe ni ti s“r e as onabl y pos s i bl e”t ha tt hee nt i t ywi l lha vet opa yt hel i abi l i t ya taf ut ur eda t e ? a . Asade f e r r edl i abi l i t y b. Asadi s c l os ur eonl y c . asanac c r ue dl i abi l i t y d. Asanac c ountpa yabl ewi t hanaddi t i onaldi s c l os ur ee xpl ai ni ngt hena t ur eoft het r ans ac t i on. 10.Anent i t yhasas e l f i ns ur anc epl an.Eac hye ar ,t hee nt i t yappr opr i a t e dr et ai nedear ni ngsf or c ont i ngenc i esi nanamounte qualt oi ns ur anc epr emi umss a ve dl e s sr ec ogni ze dl a ws ui t sandot her c l ai ms .Asar e s ul tofanac c i de nti nt hec ur r entyear ,t hee nt i t yi sade f e ndanti nal a ws ui ti nwhi c hi t woul dpr obabl yha vet opa yme as ur abl eamountofdama ge s .Wha tar et hee ffe c t soft hel a ws ui t ’ s pr obabl eout c omeont hee nt i t y’ sfinanc i als t a t e me nt sf ort hec ur r e ntye ar ? a . Ani nc r e as ei nbot he xpens e sandl i abi l i t i es b. Ani nc r e as ei ne xpe ns esandnoe ffe c tonl i abi l i t i e s c . Noe ffe c tone i t here xpe ns esorl i abi l i t i e s d. Noe ffe c tone xpe ns e sandani nc r e as ei nl i abi l i t i e s 11. A c ompanyoffe r sac as hr e ba t eofP1on e ac hP4pac ka geofl i ghtbul bss ol d dur i ng2010. Hi s t or i c al l y ,10% ofc us t ome r ’ smai li nt her e ba t ef or m.Dur i ng2015,4, 000, 000pac ka ge sofl i ght

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bul bsar es ol d,and 1 40, 000P1r e bat e sar ema i l ed t oc us t ome r s .Wha ti st her e ba t ee xpe ns eand l i abi l i t y ,r e s pe c t i ve l y , s hownont he201 5financ i als t a t eme nt sda t e dDe c embe r31? a . 140, 000; 260, 000 b. 260, 00 0; 260, 000 c . 400, 000; 260, 000 d. 400, 000; 400, 000 12.Dae woo Company i st hemai nc ont r ac t orenga ged i nt hec ons t r uc t i on ofapowe rpl antof Mar ube niCompany .I thasnow be e nde t e r mi ne dt hatt he r ear ec ons t r uc t i onde f ec t st ot hepowe r pl ant .Thebes te s t i ma t ef ort hec os t st or ec t i f yt hede f ec t si sP100, 00 0, 000. I thad pr e vi ous l y r e c ogni ze d apr ovi s i on f orwar r ant y ofP40, 000, 000on t hepr oj ec taspar toft hepr oj e c tc os t s . Howe ver ,Dae wooCompanybe l i e ve st ha ti tc anr e c overas i gni fic antpar toft hec os tf r om t hes ubc ont r ac t or swhope r f or me ds omeoft hec ons t r uc t i onwor ks .Ne got i a t i onswi t ht hes ubc ont r ac t or s ar es t i l li npr ogr es sa ndba s e dont hel a t e s te s t i ma t e ,onl yt wos ubc ont r ac t or sha veadmi t t edl i abi l i t y . Theamountofr ec over yt hati svi r t ual l yc e r t ai ni ses t i ma t eda tP10, 00 0, 000.Whatamounts houl dbe di s c l os edi nt hes t a t ementofc ompr e hens i vei nc omer e l a t edt ot heabovepr ovi s i ons ? a . none b. P10, 000, 00 0r e ve nue c . P50, 000, 000e xpe ns e d. P60, 000, 000e xpe ns e 13.Eas t er nCompanyhasobl i ga t i ont or e s t or el anda tt hee ndofi t sgr oundmovi ngac t i vi t i es .The pr ovi s i oni si nc r e as e de ver yyearbyt hepor t i onoft hel andt ha thasbe endama ged. OnDe c e mbe r31, 201 5,t heval ueoft hee xpe c t edf ut ur eamount sr equi r e dt or e s t or et hepor t i onoft hel anddama ged t oda t ei se s t i ma t e d.Thef ol l owi ngi nf or ma t i oni spr ovi de d:Bal anc easofJ anuar y1,2015( pr es e nt val ueoft hee s t i ma t edf ut ur er e c ons t r uc t i ngc os t s ) ,P3, 000, 000;Pr e s e ntval ueofes t i ma t e df ut ur e r e c ons t r uc t i ng c os ton De c embe r31,2015f ordama ge si nc ur r ed t o da t e ,P3, 670, 000;Appl i c abl e di s c ountr a t e ,9%.Wha tamountofaddi t i onalpr ovi s i ont hec ompanyhasr e c ogni ze ddur i ng2 015i n r e l a t i ont ot hedama geont hel and? a . none b. P270, 000 c . P400, 000 d. P670, 000 14.We s t e r n Companyr e c e nt l ymove di t soper at i onst one w pr e mi s es .Thenonc anc e l l abl el e as e c ont r ac tf ort heol dpr e mi s e ss t i l lhasanot he rt hr e eye ar sr e mai ni ng,a ndWes t e r ni snotal l owe dt o s ubl e as et hevac antbui l di ngi nt e r msofi t sr e nt alc ont r ac t . OnDec embe r31, 2015, t hepr es e ntval ue ofr ent alpa yme nt ss t i l lduef ort heol d pr emi s e si sP908, 000;t hec os tt oc anc e lt hec ont r ac ti s e s t i ma t edt obeP775, 000. Wha tamountofpr ovi s i ons houl dt hec ompanyr e c ogni zeonDec embe r31, 201 5? a . none b. P133, 000 c . P775, 000 d. P908, 000 15.Mol de rCompany hasguar ant e ed al oan ofP300, 000gr ant e dt oMi l l erCompany .Af t e rt he bal anc es hee tda t eofMol de rCompanybutbe f or et hedi r e c t or sappr ove dt hefinanc i als t a t eme nt s ; Mol de rCompanyr ec ei vesnot i c et ha tMi l l erCompanyi si nl i qui da t i on.Wha tpr operac c ount i ng s houl dMol de rCompanyac c ountf ort heguar ant e e ,as s umi ngt hec r e di t orofMi l l erCompanywi l l i nvoket heguar ant e e ? a . Theamountofguar ant eei snotac c ount e df ori nMol de r ’ sbooks .

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b. TheamountofP300, 000s houl dber ec ogni ze dasapr ovi s i on c .TheP300, 00 0ber e c ogni ze dasal i abi l i t ywi t hne c es s ar ydi s c l os ur ei nt henot e st ot hefinanc i al s t a t e me nt s d. Thec ont i ngentl i abi l i t ys houl dbedi s c l os e dbywayofnot et ot hefinanc i als t a t e me nt s . 16. I nDe c embe r20x1, Mi l lCo.be gani nc l udi ngonec ouponi ne ac hpac ka geofc andyt ha ti ts e l l sand offe r i ngat oyi ne x c hangef or50c ent a vosandfivec oupons .Thet oysc os tMi l l80c e nt a vose ac h. Event ual l y60% oft hec ouponswi l lber e de emed.Dur i ngDe c embe r ,Mi l ls ol d110, 000pac ka ge sof c andyandnoc ouponswe r er ede emed.I ni t sDe c embe r31, 20x1, bal anc es hee t ,wha tamounts houl d Mi l lr e por tases t i ma t e dl i abi l i t yf orc oupons ? a . 3, 960 b. 10, 560 c . 19, 800 d. 52, 800 17.I n Ma y20x6,Cas oCo.fil ed s ui tagai ns tWa yne ,I nc .s e e ki ng ₱1, 900, 00 0dama ge sf orpa t ent i nf r i ngeme nt .A c our tve r di c ti nNove mbe r20x9a war de dCas o₱1, 500 0, 000i ndama ges , butWa yne’ s appea li snote xpe c t edt obedec i de dbe f or e2x10. Cas o’ sc ouns e lbe l i e ve si ti spr obabl et ha tCas owi l l bes uc c es s f ulagai ns tWa ynef orane s t i ma t e damounti nt her angebe t wee n₱80 0, 000and₱1, 100, 000 , wi t h₱1, 000, 000c ons i der e dt hemos tl i ke l yamount .Wha tamounts houl dCas or e c or dasi nc ome f r om t hel a ws ui ti nt heyearende dDe c embe r31, 20x9? a . 0 b. 800, 00 0 c . 1, 000, 000 d. 1, 500, 00 0 18.Dur i ng20 x0,Smi t hCo.fil e ds ui tagai ns tWe s t ,I nc .s e e ki ngdama ge sf orpa t enti nf r i ngement .At De c embe r31,20x0,Smi t h' sl e galc ouns e lbe l i e ved t ha ti twaspr obabl et ha tSmi t h woul d be s uc c e s s f ula gai ns tWe s tf oran e s t i ma t e d amounti nt her angeof₱75, 000t o ₱150, 000,wi t h al l amount si nt her angec ons i de r edequal l yl i ke l y.I nMar c h20x1,Smi t hwasa war de d ₱100, 000and r e c ei vedf ul lpa yme ntt her eof .I ni t s20x0financ i als t a t e me nt s ,i s s uedi nFe br uar y20 x1,how s houl d t hi sa war dbyr epor t e d? a . Asar e c ei vabl eandr e venueof₱100, 000. b. Asar e c ei vabl eandde f e r r edr eve nueof₱100 , 000. c . Asadi s c l os ur eofac ont i ngentgai nof₱100, 000 . d. Asadi s c l os ur eofac ont i nge ntga i nofanunde t e r mi ne damounti nt her angeof₱75, 000t o ₱150 , 000. 19.Dur i ng J anuar y 20x9,Haz eCor p.won al i t i gat i on a war df or₱15, 000whi c h wast r i pl ed t o ₱45, 000t oi nc l udepuni t i vedama ge s .Thede f e ndant ,whoi sfinanc i al l ys t abl e ,hasappe al e donl yt he ₱30, 000puni t i vedama ge s .Hazewasa war de d₱50, 000i nanunr e l a t e ds ui ti tfil e d,whi c hi sbe i ng appea l edbyt hede f endant .Couns e li sunabl et oe s t i ma t et heout c omeoft hes eappe al s .I ni t s20x9 financ i als t a t eme nt s , Hazes houl dr e por twha tamountofpr e t axga i n? a . 15, 000 b. 45, 000 c . 50, 000 d. 95, 000 20.Na t i onalAppl i anc eCe nt ers e l l swas hi ng ma c hi ne st ha tc ar r y at hr e eye arwar r ant ya gai ns t manuf ac t ur er ' sde f e c t s .Bas ed on c ompany e xper i e nc e ,war r ant yc os t sar ees t i ma t ed a t₱60per mac hi ne .Dur i ng t heye ar ,Na t i onals ol d 48, 000was hi ng mac hi nesand pai d war r ant yc os t sof

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₱340 , 000.I ni t si nc omes t a t e me ntf ort heye are nde dDe c embe r31,Na t i onals houl dr e por twar r ant y e xpe ns eof a . 680, 000 b. 960, 000 c . 2, 200, 000 d. 2, 880, 000

"So, if you think you are standing firm, be careful that you don’t fall! No temptation has overtaken you except what is common to mankind. And God is faithful; he will not let you be tempted beyond what you can bear. But when you are tempted, he will also provide a way out so that you can endure it." ( 1Cor i nt hi ans10 : 1 21 3)

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