UNIT 2: ACCOUNTING FOR LIABILITIES

PRETEST

Recognize Disclosed Ignored

1. A Company sells color television sets with a two-year
repair warranty. The sale was made in cash. /

2. B Company sells color television sets with a two-year

repair warrant. The sale was made in two installment /
payments.

3. C Company sold 500,000 boxes of cake mix under a

new sales promotional program. Each box contained a / /
coupon, which entitled the customer to a baking pan. The
entity estimated that 80% of the coupons will be
redeemed, however, only 60% had been processed.

4. D Company is defending against a lawsuit and believes

there is only 25% chance it will lose in court. If the /
company loses, management believes damages will fall
somewhere in the range of P3,000,000 to P4,000,000
with each amount in that range equally likely to occur.

5. E Company is defending against a lawsuit and believes

there is a 51% chance it will lose in court. The entity / /
estimates that damages will be P1,000,000.

6. On December 1, year 2, F Company was awarded /

damages of P75,000 in a patent infringement suit it (recognition
brought against a competitor. The defendant did not of income)
appeal the verdict, and payment was received in
January year 3.