Electronics4U manufactures highend whole home electronic systems. The company provides a oneyear warranty for all products sold. The company...
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SUBJECT: INTERMEDIATE ACCOUNTING 3

TOPIC: NONFINANCIAL LIABILITIES

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20. 21. Electronics4U manufactures high—end whole home electronic systems. The company provides a one—year warranty for all products sold. The company estimates that the warranty cost is P200 per unit sold and reported a liability for estimated warranty costs P6.5 million at the beginning of this year. If during the current year, the company sold 50,000 units for a total of P243 million and paid warranty claims of P1500000 on current and prior year sales, what amount of liability would the company report on its statement of financial position at the end of the current year? .3. P2500000. b. P3500000. 0. P0000000. d. P10000000. Tender Foot Inc. is involved in litigation regarding a faulty product sold in a prior year. The company has consulted with its attorney and determined that it is possible that they may lose the case. The attorneys estimated that there is a 40% chance of losing. If this is the case, their attorney estimated that the amount of any payment would be P500000. What is the required journal entry as a result of this litigation? 3. Debit Litigation Expense for P500000 and credit Litigation liability for P500000. b. Nojournal entry is required. c. Debit Litigation Expense for P200000 and credit Litigation Liability for P200000. d. Debit Litigation Expense for P300000 and credit Litigation Liability for P300000.

22. 23. Winter Co. is being sued for illness caused to local residents as a result of negligence on the company's part in permitting the local residents to be exposed to highly toxic chemicals from its plant. Winter's lawyer states that it is probable that Winter will lose the suit and be found liable for a judgment costing Winter anywhere from P1,200,000 to P6,000,000. However, the lawyer states that the most probable cost is P3,600,000. As a result of the above facts, Winter should accrue a. a loss contingency of P1,200,000 and disclose an additional contingency of up to P4,800,000. b. a loss contingency of P3,600,000 and disclose an additional contingency of up to P2,400,000. c. a loss contingency of P3,600,000 but not disclose any additional contingency. d. no loss contingency but disclose a contingency of P1,200,000 to P6,000,000. Chippy Company's salaried employees are paid biweekly. Occasionally, advances made to employees are paid back by payroll deductions. Information relating to salaries for the calendar year 2015 is as follows: 12531,]14 1231(15 Employee advances P12,000 P 18,000 Accrued salaries payable 65,000 ? Salaries expense during the year 650,000 Salaries paid during the year {gross} 625,000 At December 31, 2015, what amount should Chippy report for accrued salaries payable? 3. PQODOO. b. P84,0£}O. c. P721100. d. P25,000.

24. Felton Co. sells major household appliance service contracts for cash. The service contracts are for a one—year, two—year, or three-year period. Cash receipts from contracts are credited to unearned service contract revenues. This account had a balance of P480,000 at December 31, 2014 before year—end adjustment. Service contract costs are charged as incurred to the service contract expense account, which had a balance of P120,000 at December 31, 2014. Outstanding service contracts at December 31, 2014 expire as follows: During 2015 During 2016 During 2017 P100,000 P160,000 P70,000 What amount should be reported as unearned service contract revenues in Felton's December 31, 2014 statement of financial position? P360,UOO. P330,UOO. P240,000. P220,000. 51F" 53'?"

25. During 2014, Eaton Co. introduced a new product carrying a two-year warranty against defects. The estimated warranty costs related to dollar sales are 2% within 12 months following sale and 4% in the second 12 months following sale. Sales and actual warranty expenditures for the years ended December 31, 2014 and 2015 are as follows: Actual Warranty Sales Expenditures 2014 P 800,000 P12,000 2015 1 000 000 30,000 P1 800 000 P42,000 At December 31, 2015, Eaton should report an estimated warranty liability of a. P0. b. P10,UUO. c. P30,UUO. d. P66,UUO. 26. An entity sells goods that carry two-year warranty. If minor repairs were to be required on all goods sold in 2020, the repair cost would be P100,000. If major repairs were needed on all goods sold, the cost would be P500,000. It is estimated that 80% of the goods sold in 2020 will have no defects, 15% will have minor defects and 5% will have major defects. How much is the provision for warranty repairs for the year 2020? P40. P100,000. P300,000. P500,000. P—F'P'P'

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