Assignment

Instruction:

1.Kindly identify if the following statements are Accrued Expense, Provision or

Contingent Liability.

2.Explain briefly why.

3. Propose a journal entry when necessary.

1. In August 2020, the XYZ commenced a suit against DEF for alleged violation
of anti-trust laws seeking damages of 2,000,000. DEF denies the allegations,
and as of December 31, 2020. It is not likely that DEF will pay any damages
because of lawsuit
2. In September 2020, Garrison Company became involved in lawsuit. As a
result of litigation, it is more likey than not the Garrison will have to pay an
amount ranging from 700,000 to 1,000,000 but 800,000 is considered the
best estimate
3. In the latter part of December 2020, Dallas Company’s vehicle was involved
in a collision with a truck of Kansas Corporation. In January 2021, Kansas
filed a lawsuit against Dallas for damages to the vehicle. Based on the
police incident report, it is probable that estimated damages between
300,000 and 500,000 will be incurred by Dallas. Each point within the range
of amounts is considered as likely as any other point. Dallas issued its 2020
financial statements in March 2021
4. In the latter part of December 2020, Dallas Company’s vehicle was involved
in a collision with a truck of Kansas Corporation. In January 2021, Kansas
filed a lawsuit against Dallas for damages to the vehicle. Based on the
police incident report, it is probable at December 21, 2020 that estimated
damages between 300,000 and 500,000 will be incurred by Dallas. In
February 2021, Kansas accepted Dallas offer of 350,000 fron
reimbursement of damages of its car. Dallas issued its 2020 financial
statement on March 2021
5. During 2020, Going Steady Company sold that offer product warranties
against defects. Based on the entity’s industry experience, it is estimated
that 60% of the products sold have no defects, 30% have minor defects and
10% have major defects. Estimated warranty cost were 1,000,000 if all
products sold have major defects and 200,000 if all products sold have
minor defects. Going steady has already incurred 60,000 of warranty cost
relating to appliances sold during 2020.
6. In October 2020, Manila Government brought action against Harrison
Company in the amount of 1,900,000 for polluting Manila Bay. It is possible
that Manila Government will be successful in the case. The amount of
damages based on best estimate of the legal counsel is 1,200,000.
7. Seller Company sold goods to Buyer Company for 200,000 on account on
October 20,2020. Before the year ended Buyer company informed Seller
company that the company will not be able to pay its debts on time as the
company suffers from losses due to pandemic.
8. A company has a private jet costing 24 million. Air regulations required it to
be overhauled every four years. An overhaul cost 1.6 million. The company
policy has been to create a provision for depreciation of 2 million on a
straight-line basis over twelve years and an annual provision of 400,000 to
meet the cost of the required overhaul every four years