Actual Amount P900,000 B

1.

On December 25, 2024, an employee filed a P3,000,000 a lawsuit against Ox Ford Company for damages
suffered when one of Ox Ford’s equipment malfunctioned in August of 2024. The legal counsel of the
company believes that it is probable that Ox Ford will pay the damages raging between P500,000 to
P1,000,000. Each point within the range is as likely as any other. On March 1, 2025, the employee has
offered to settle the lawsuit out of court for P900,000 and the company accepted the offer and settled the
amount. The financial statements were authorized to be issued on March 31, 2025.

 How much is the provision that should be recognized as of December 31, 2024?
A.820,000 B. 900,000 C. 750,000 D. 1,000,000

Actual amount = P900,000 B.
2. During 2019, Angles company guaranteed a supplier’s P750,000 loan from a bank. On October 1, 2019,
Angels was notified that the supplier had defaulted on the loan and filed for bankruptcy protection. Counsel
believes Angels will probably have to pay between P375,000 and P675,000 under its guarantee. As a result
of the supplier’s bankruptcy, Angels entered into a contract in December 2019 to retool its machines to that
Angles could accept parts from other suppliers. Retooling costs are estimated to be P450,000.
 What amount should Angels report as a liability in its December 31, 2019, statement of financial
position?
A. 375,000 B. 525,000 C. 675,000 D. 975,000
Mid-range [375,000 + 675,000] / 2 = P525,000 B
3. A court case decided on December 31, 2019 awarded damages against Rangers. The judge has announced
that the amount of damages will be set at a future date, expected to be in March 2020. Ranger has received
advice from its lawyer that the amount of the damages could be anything between P20,000 and P7,000,000.
 As of December 31, 2019, how much should be recognized in the statement of financial position
regarding this court case?
A. 20,000 B. 7,000,000 C. 3,510,000 D. 0
None (not measurable) = P0 D.
4. Ace Company was involved in litigation regarding a faulty product sold in a prior year. The entity consulted
with an attorney and determined that it is possible that it may lose the case. The attorney estimated that there
is a 50% chance of losing. If this is the case, the attorney estimated that the amount of any payment would
be P500,000.
 What is the required journal entry as a result of this litigation?

A. Debit Litigation Expense and credit Litigation Liability P500,000.
B. No Journal entry is required but disclosure is necessary.
C. Debit Litigation Expense and credit Litigation Liability P250,000.
D. No journal entry and disclosure are required.
None (not probable) = P0 B.
5. Mill Company sells washing machines that carry a three-year warranty against manufacturer’s defects.
Based on the entity’s experience, warranty costs are estimated at P300 per machine. During the current year,
the entity sold 2,400 washing machines and paid warranty costs of P170,000.
 What amount should be reported as warranty expense and warranty liability at year-end?
A. B. C. D.
Warranty expense 550,000 240,000 550,000 720,000
Warranty liability 170,000 550,000 720,000 550,000
Warranty expense (2,400 x 300) P 720,000

Actual warranty expenditure (170,000)
Warranty liability P 550,000 D.
6. In 2019, Shiftry Corporation began selling a new line of products that carry a two-year warranty against
defects. Based upon past experience with other products, the estimated warranty costs related to peso sales
are as follows:
First year of warranty 4%

Second year of warranty 6%
Sales and actual expenditures for 2019 and 2020 are presented below:
2018 2019
Sales 500,000 700,000
Actual warranty expenditures 15,000 47,000
 What amount should Shiftry report as its estimated warranty liability at December 31, 2019?
A. 0 B. 16,000 C. 42,000 D. 58,000
Cumulative sales (500,000 + 700,000) P1,200,000

Estimated warranty cost 10%
Cumulative warranty expense 120,000
Cumulative warranty expenditure (15,000 + 47,000) (62,000)
Warranty liability P 58,000 D.
7. Pilfering Company introduced in 2017 a new TV model with a two-year warranty against defect. Pilfering
Company estimates the warranty costs at 2% of sales within 12 months following the sales and 4% in the
second 12 months following the sale. Sales and actual warranty costs for the year ended December 31, 2017
are P3,000,000 and P45,000 respectively.
 Pilfering Company should report an estimated warranty liability in its December 31, 2017 balance
sheet is
A. 180,000 B. 150,000 C. 135,000 D. 75,000
Sales P3,000,000
Warranty cost 6%
Warranty expense 180,000
Actual warranty expenditure (15,000 + 47,000) (45,000)
Warranty liability P 135,000 C.
8. Xoiswa Company manufactures a product that is packaged and sold. A plate is offered to customers sending
in three wrappers accompanied by a remittance of P10. Data with respect to the premium offer are
summarized below:
2018 2019
Sales 3,600,000 4,200,000
Purchase of premium, P50 per plate 390,000 580,000
Number of plates distributed as premiums 5,000 9,000
Estimated number of plates to be distributed in next period 2,000 3,000
Distribution cost P20 per plate
 What is the premium expense for 2019?

A. 600,000 B. 400,000 C. 700,000 D. 720,000
Premium liability – beginning 2,000 units
Premium expense squeeze 10,000 units
Premium distribute (9,000 units)
Premium Liability – ending 3,000 units
Premium expense in units 10,000 units

Net cost (50+20-10) 60 per unit
Premium expense P600,000 A.
9. – 10. Topsy Company stated a new promotional program. For every 10 box tops returned, customers
received a basketball. The entity estimated that only 60% of the box tops reaching the market would be
redeemed.
Units Amount
Sales of product 100,000 30,000,000
Basketballs purchased 5,500 4,125,000
Basketball distributed 4,000
 What is the premium expense for the year?

A. 4,500,000 B. 1,500,000 C. 4,125,000 D. 7,500,000
 What is the amount of year-end estimated liability associated with this promotion?
A. 4,125,000 B. 1,500,000 C. 4,125,000 D. 7,500,000
Box tops distributed 100,000

Percentage of redemption 60%
Box tops expected to be redeemed 60,000
Box tops requirement for one premium 10
Premium expense – units 6,000 units
Net cost (4,125,000 / 5,500) 750
Premium expense – peso P 4,500,000 A.
Premium expense – units 6,000 units

Premium distributed (4,000 units)
Premium liability – units 2,000 units
Net cost 750
Premium liability – peso P 1,500,000 B.

Actual Amount P900,000 B

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1.

Actual amount = P900,000 B.

Mid-range [375,000 + 675,000] / 2 = P525,000 B

None (not measurable) = P0 D.

 What is the required journal entry as a result of this litigation?

None (not probable) = P0 B.

Warranty expense (2,400 x 300) P 720,000

First year of warranty 4%

Cumulative sales (500,000 + 700,000) P1,200,000

 What is the premium expense for 2019?

Premium expense in units 10,000 units

 What is the premium expense for the year?

Box tops distributed 100,000

Premium expense – units 6,000 units

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