1. Assume that a company is facing a lawsuit from a rival firm for patent infringement.

The company’s
Required: Prepare journal entry for the above
Ans.
Journal Entry: Debit Credit
Legal Expense $2,000,000
Contingent Legal Liability $2,000,000
2. A furniture company sells 20 dining room sets for a total of $50,000 in a month. Since historical da
Ans.
Total Sales $50,000
Bad Debt Rate 4%
Bad Debt Provision $2,000
3. An electronics manufacturing company offers a one-year warranty on every television it sells. The
The company sold 1,000 televisions at an average price of $750 last year. Based on prior experien
How much is to be recognized as a provision for warranty repair cost?
Ans.
Units Sold 1,000
Defective Percentage 6%
Total Defective Units 60
Average Repair Cost 80
Warranty Repair Cost 4,800
4. A youth sports organization knows that many goalposts on its football fields need repairs, so it des
*Will a provision for the repair cost be recognized? (Yes or No)
*What will be the basis of the provision?
Ans.
Yes, The provision would be based on the expected cost of repairing or replacing the goalpos
Based on the given facts, the organization would need to produce a credible estimate of the e

5. On August 1, Cloud Storage Co received a $1,200 payment for a one-year contract from a new cli
Ans.
Total Payment $1,200
Total Months 12
Monthly Portion $100
Months Remaining 7
Deferred Revenue $700
ringement. The company’s legal department thinks that the rival firm has a strong case, and the business estimates a $2 million

month. Since historical data points to an average 4% bad debt rate, how much will the company can reasonably recognize as b

ery television it sells. The warranty specifies the conditions under which the manufacturer agrees to compensate the consumer
r. Based on prior experience, the company expects 6% of the televisions to be defective, with an average repair cost of $80 pe

lds need repairs, so it designates money at the start of the calendar year to replace them over the summer.

or replacing the goalposts.

redible estimate of the estimated cost.

ar contract from a new client. How much will be the deferred revenue balance as of Dec. 31?
ess estimates a $2 million loss if the firm loses the case.

easonably recognize as bad debt provision?

ompensate the consumer for a defective product.

rage repair cost of $80 per unit.