Exam 11: Current Liabilities and Contingencies

Which of the following characteristic is required for a liability under IFRS Framework?

Which statement about warranties is correct?

Consider the following independent situations.The underlined entity is the reporting entity. 1.Call Cattle Inc.sued Nutrient Feed Ltd.for $10 million alleging breach of contract.Nutrient's legal counsel estimates that Call's likelihood of success is about 80%.Based on its experience with cases of this nature,the law firm estimates that,if successful,the litigants will be awarded $8,800,000 to $9,000,000,with all payouts in this range being equally likely. 2.Deana Finnamore broke her leg when she tripped on an uneven floor surface in Groton Co.'s office.On the advice of legal counsel,Groton has offered Finnamore $140,000 to settle her $275,000 lawsuit.It is unknown whether Finnamore will accept the settlement offer.Groton's legal counsel estimates that Finnamore has a 90% probability of success,and that if successful,she will be awarded $230,000. 3.The courts ordered a competitor to pay $1,000,000 to Ferbert and Finn Corp.for patent infringement.The competitor's legal counsel indicated that the company will probably appeal the amount of the award. Required: a.For each of the situations,indicate whether the appropriate accounting treatment is to: A.Recognize an asset or liability. B.Disclose the details of the contingency in the notes to the financial statements. C.Neither provide for the item nor disclose the circumstances in the notes to the financial statements. b.For each situation that requires the recognition of an asset or liability,record the journal entry.

GOT Jetski Corp.has sold motorized watercraft for a number of years.GOT includes a three-year warranty on each watercraft they sell.Management estimates that the cost of providing the warranty coverage is 2% of sales in the first year and 3% of sales in each of years two and three.Other facts follow: ∙ GGT reported a $270,000 provision for warranty payable on its December 31,2017 balance sheet. ∙ GGT's sales for 2018 totalled $6,000,000 spread evenly through the year. ∙ The cost to GGT of meeting their warranty claims in 2018 was $480,000;$300,000 for parts and $180,000 for labour. ∙ GGT's sales for 2019 totalled $6,200,000 spread evenly through the year. ∙ The cost to GGT of meeting their warranty claims in 2019 was $468,000;$280,800 for parts and $187,200 for labour.Based on recent claims history,GGT revises their 2019 warranty provision to 9% of sales. Required: a.Prepare summary journal entries to record warranty expense and warranty claims in 2018 and 2019. b.Determine the provision for warranty payable that GGT will report as a liability on December 31,2019.

Consider the following independent situations.The underlined entity is the reporting entity. 1.The Supreme Court of Canada ordered a supplier to pay Towna Haring Inc.$500,000 for breach of contract. 2.Iwas Pharmaceuticals Inc.sued Game Day Agencies Ltd.for $8 million alleging patent infringement.While there may be some substance to Iwas's assertion,Game Day's legal counsel estimates that Iwas's likelihood of success is about 30%. 3.Environment Canada sued Foil Fan Isotopes Ltd.for $18 million seeking to recover the costs of cleaning up Foil Fan's accidental discharge of radioactive materials.Foil Fan acknowledges liability but is disputing the amount,claiming that the actual costs are in the range of$9 million to $12 million.Foil Fan's $18 million environmental insurance policy includes a $6 million deductible clause. Required: a.For each of the situations,indicate whether the appropriate accounting treatment is to: A.Recognize an asset or liability. B.Disclose the details of the contingency in the notes to the financial statements. C.Neither provide for the item nor disclose the circumstances in the notes to the financial statements. b.For each situation that requires the recognition of an asset or liability,record the journal entry.

Which statement is correct about provisions,contingent assets and contingent liabilities?

Which statement is correct?

Which statement about contingencies is correct?

For the following transaction,provide all of the required journal entries from inception to liquidation.Assume a December 31 year end and that the company does not prepare interim statements.Round all amounts to nearest dollar. Face value of note payable \ 200,000 Date of issue for note March 1,2016 Due date for note March 1,2017 Interest rate in the note 0\% Market rate of interest 5\% Consideration received Machinery

A company,using a perpetual inventory system,sells goods on credit for $10,000.The applicable PST rate is 5% and the GST rate is 10%.The cost of goods sold was $6,000.Sales taxes are remitted on a monthly basis.Prepare the necessary journal entries for this transaction.

Which statement is correct?

Explain some of the challenges that exist in determining the amount of a "liability" by identifying factors that influence the value of the indebtedness.

Which statement is correct about financial and non-financial liabilities?