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Prob Chap 4-18 To 19

Dean Company is being sued for patent infringement. Their legal counsel believes an unfavorable outcome is probable, and estimates damages will be between $850,000-$900,000. However, their best estimate is $600,000. The amount to accrue as a liability on December 31,

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2K views

Prob Chap 4-18 To 19

Dean Company is being sued for patent infringement. Their legal counsel believes an unfavorable outcome is probable, and estimates damages will be between $850,000-$900,000. However, their best estimate is $600,000. The amount to accrue as a liability on December 31,

Uploaded by

maryani
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
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Problem 4-18 (IAA)

Newton Company is involved in litigation regarding a faulty product sold in a prior year
e entity has consulted with an attorney and determined that the entity may lose the
case. The attorney estimated that there is a 50% chance of losing.
If this is the case, the attorney estimated that the amount of any payment would be
P5,000,000. What is the required journal entry as a result of this litigation? a. Debit
litigation expense and credit litigation liability
P5,000,000. b. No journal entry is required.
Debit litigation expense and credit litigation liability
P2,000,000. d. Debit litigation expense and credit litigation liability
P3,000,000.

Problem 4-19 (AICPA Adapted)


On March 1, 2020, a suit was filed against Dean Company for patent infringement.
Dean's legal counsel believed an unfavorable outcome is probable and estimated that
the entity will have to pay between P850,000 and P900,000 in damages.
However, Dean's legal counsel is of the opinion that P600,000 is a better estimate than
any than other amount in the range.
The situation was unchanged when the December 31, 2020 financial statements were
released on February 15, 2021.
What amount should be accrued as liability on December 31. 2020 in connection with
this suit?
a. 900,000 b. 600,000
500,000

sued by a competitor for

Problem 4-20 (IFRS)


During 2020. Thor Company wa P5,000,000 for infringeme
OU for infringement of a trademark.
the entity
ased on the advice of the entity's legal counsel, the e accrued the sum of P3.000.000 as
a provision in the financi
ements for the year ended December 31, 2020.
on February
subsequent to the end of the reporting period, on Feb 15, 2021, the Supreme Court
decided in favor of the part alleging infringement of the trademark and ordered th
defendant to pay the aggrieved party a sum of P3,500,000
The financial statements were prepared by the entitvi. management on January 31,
2021, and approved by the board of directors on February 20, 2021. What amount of
provision should have been accrued on December 31, 2020? a. 5,000,000 b. 3,000,000
3,500,000

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