Reference no: EM133123789

Question 1 - The estimated warranty cost for the first year of coverage is 1% of sales and for the second year of coverage is 2% of sales

Warranty claims 2017 - parts $48,000

Provision for warranty obligations balance, January 1, 2017 $145,000

2017 sales $4,500,000

Warranty claims 2017 - labour $51,000

Warranty obligations on December 31, 2017 is:

a) $91,000 b) $36,000 c) $181,000 d) $135,000

Question 2 - A customer bought a pint of Festive Best Bitter in his local pub during March 2020 and became ill. He is suing the pub and Festive. The case has not yet come to court. Even though the company's solicitors believe they will win the case, the Board of Directors offered an out-of-court settlement of $10,000 as a goodwill gesture Which one of the below is correct?

a) Record a provision for $10,000 and disclose the nature of the lawsuit

b) Record a provision for $10,000

c) Disclose the nature of the lawsuit

d) No action required

Question 3 - An employee of Sky rocket Ltd. (sky) is suing the company for termination without cause. The employee is suing for $2,700,000 for severance and defamation of character. Sky's lawyers estimate that the company will be held liable with an 80% probability. Counsel estimates that there is a 35% probability that the court would award $1,500,000, a 35% probability that $1,000,000 would be awarded, and a 30% probability that $800,000 would be awarded. Sky follows IFRS. Which of the following is the proper accounting treatment for this lawsuit?

a) Record a provision for $800,000 and disclose the nature of the lawsuit.

b) Record a provision for $1,115,000 and disclose the nature of the lawsuit.

c) Record a provision for $1,500,000 and disclose the nature of the lawsuit.

d) Record a provision for $2,700,000 and disclose the nature of the lawsuit.

Question 4 - Crazy Corp. sued Funny Inc. for $930,000 for infringement. Funny Inc.'s counsel believes that the plaintiff has a 70% probability of success. The counsel believes that there is a 30% probability of a $500,000 award; a 60% probability of a $600,000 award; and a 10% probability of a $740,000 award How must provision should be recognised?

a) $930,000 b) $500,000 c) $600,000 d) None of the above

Question 5 - O&G was sued for $12,500,000 for the spills and the cost of cleaning was estimated to be $11,000,000. O&G acknowledged liability and agreed for a settlement as per its council's advice. Estimator provided an estimate that the actual cleanup costs to be somewhere between $9,000,000 and $11,000,000. O&G's $20,000,000 insurance policy for negligence is subject to a $3,250,000 deductible Which one of the below is correct?

a) Provide for $12,500,000 since O&G acknowledged liability

b) No action required

c) Provide for $16,750,000

d) Provide for $3,250,000