Reference no: EM132951769
Problem 1: Western Company has several contingent liabilities on December 31, 2020. The auditor obtained the following brief description of each liability. In June 2020, Western Company became involved in litigation. In December 2020, the court assessed a judgement for P2,000,000 against Western Company. The entity is appealing the amount of the judgement. The entity's attorney believed it is probable that they can reduce the assessment on appeal by 50%.
In August 2020, Pasig City brought action against Western Company for polluting the river with its waste products. It is probable that Pasig City will be successful but the amount of damages Western might have to pay should not exceed P3,000,000. What total amount should be accrued as provision on December 31, 2020?
a. 3,000,000
b. 5,000,000
c. 2,000,000
d. 4,000,000
Problem 2: In August 2020, ABC Company filed suit against CBA Company seeking 4,000,000 damages for patent infringement. A court verdict in November 2020 awarded ABC Company P2,000,000 in damages, bur CBA's appeal is not expected to be decided before 2021. ABC's counsel believed it is probable that ABC will be successful against CBA for an estimated amount in the range of 500,000 and 1,500,000, with 1,000,000 considered the most likely amount. What amount should ABC record as income from the lawsuit for the year ended December 31, 2020?
a. Zero
b. 1,000,000
c. 2,000,000
d. 1,500,000
Problem 3: Mercedes Company issued P 10,000,000 face value 12% convertible bonds at 110 on January 1,2020, maturing on January 1, 2025 and paying interest semiannually on January 1 and July 1. It is estimated the bonds would sell only 105 without the conversion feature. Each P1,000 bond is convertible into 10 ordinary shares with P100 par value. What is the increase in shareholders equity arising from the issuance of the convertible bonds on January 1, 2020?
a. 350,000
b. 500,000
c. 1,000,000
d. Zero
What would be the entry to record the issuance of the bonds payable?
a. Cash 11,000,000
Bonds Payable 10,000,000
Premium bonds payable 500,000
Share premium-conversion privilege 500,000
b. Cash 11,000,000
Bonds Payable 10,000,000
Premium bonds payable 650,000
Share premium-conversion privilege 350,000
c. Cash 11,000,000
Bonds Payable 10,000,000
Premium bonds payable 350,000
Share premium-conversion privilege 650,000
d. Cash 11,000,000
Bonds Payable 10,000,000
Premium bonds payable 1,000,000
Problem 4: Maryland Company purchased equipment for 2,000,000 on January 1,2020 with a useful life of 5 years and a residual value of 500,000 using the straight-line method for financial statement purposes. Depreciation was P300,000 for 2020 and P200,000 for 2021 for tax purposes. Income before tax and depreciation was P3,000,000 during 2021 and the tax rate was 25%. During 2021 the entity made an estimated tax payment of 200,000. What is the income tax payable on December 31, 2021?
a. 640,000
b. 500,000
c. 450,000
d. 675,000
What would be the total amount of income tax expense that is reported in the 2021 income statement?
a. 675,000
b. 500,000
c. 475,000
d. 640,000