Chapter 1 Problem 1-52 to 59
Problem 1-52 Answer A
The probable loss is recorded but the possible loss is only disclosed.
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Problem 1-53 Answer C
The best estimate is recorded. The accepted BIR offer is not recorded because it was made after the statements are issued.
Problem 1-54 Answer D
The provision should be accrued because it is probable and measurable. The accrued amount is P350,000 which is the midpoint of the range in the absence of the best estimate within the range.
Problem 1-55 Answer D
The contingent asset is disclosed only because the case is unresolved on December 31, 2008 . The issue is what amount of asset will be disclosed. Since the case is settled in March 2009 after the issuance of the 2008 financial statements, the amount P1,500,000 should be disclosed. However, if the case is settled before the issuance of the statements, the actual award of P1,000,000 should be disclosed.
Problem 1-56 Answer A
Haze can report a gain of P1,500,000 in its 2008 income statement because this amount is already settled on December 31, 2008 . However, the remainder of P3,000,000 is only disclosed because the defendant has appealed the said amount.
Problem 1-57 Answer A
The loss on the first lawsuit is both probable and measurable and therefore can be accrued as a provision.
Problem 1-58 Answer B
Environmental cost 500,000
Litigation cost 300,000
Total accrued liability 800,000
Both are accrued as provision because the loss is probable and measurable.
Problem 1-59 Answer D
Assessment on appeal (50% x 1,600,000) 800,000
Environmental cost 1,500,000
Total provision 2,300,000
The loss from the guaranty is not accrued because it is remote.
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