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CHAPTER 26. 1

QUIZ
1. In December 20x1, Mill Co. began including one coupon in each package of candy that it sells
and offering a toy in exchange for 50 centavos and five coupons. The toys cost Mill 80 centavos
each. Eventually 60% of the coupons will be redeemed. During December, Mill sold 110,000
packages of candy and no coupons were redeemed. In its December 31, 20x1, balance sheet,
what amount should Mill report as estimated liability for coupons?
a. 3,960
b. 10,560
c. 19,800
d. 52,800

2. In May 20x6, Caso Co. filed suit against Wayne, Inc. seeking ₱1,900,000 damages for patent
infringement. A court verdict in November 20x9 awarded Caso ₱1,5000,000 in damages, but
Wayne’s appeal is not expected to be decided before 2x10. Caso’s counsel believes it is probable
that Caso will be successful against Wayne for an estimated amount in the range between
₱800,000 and ₱1,100,000, with ₱1,000,000 considered the most likely amount. What amount
should Caso record as income from the lawsuit in the year ended December 31, 20x9?
a. 0
b. 800,000
c. 1,000,000
d. 1,500,000

3. During 20x0, Smith Co. filed suit against West, Inc. seeking damages for patent infringement. At
December 31, 20x0, Smith's legal counsel believed that it was probable that Smith would be
successful against West for an estimated amount in the range of ₱75,000 to ₱150,000, with all
amounts in the range considered equally likely. In March 20x1, Smith was awarded ₱100,000 and
received full payment thereof. In its 20x0 financial statements, issued in February 20x1, how
should this award by reported?
a. As a receivable and revenue of ₱100,000.
b. As a receivable and deferred revenue of ₱100,000.
c. As a disclosure of a contingent gain of ₱100,000.
d. As a disclosure of a contingent gain of an undetermined amount in the range of ₱75,000 to
₱150,000.

4. During January 20x9, Haze Corp. won a litigation award for ₱15,000 which was tripled to
₱45,000 to include punitive damages. The defendant, who is financially stable, has appealed only
the ₱30,000 punitive damages. Haze was awarded ₱50,000 in an unrelated suit it filed, which is
being appealed by the defendant. Counsel is unable to estimate the outcome of these appeals. In
its 20x9 financial statements, Haze should report what amount of pretax gain?
a. 15,000
b. 45,000
c. 50,000
d. 95,000
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5. National Appliance Center sells washing machines that carry a three-year warranty against
manufacturer's defects. Based on company experience, warranty costs are estimated at ₱60 per
machine. During the year, National sold 48,000 washing machines and paid warranty costs of
₱340,000. In its income statement for the year ended December 31, National should report
warranty expense of
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."
(1 Corinthians 10:12-13)
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