Question #2 A customer (Soon Come) filed a lawsuit against Party Limited in December 2009. The...
Fantastic news! We've Found the answer you've been seeking!
Question:
Transcribed Image Text:
Question #2 A customer (Soon Come) filed a lawsuit against Party Limited in December 2009. The customer is claiming damages amounting to $1,500,00 arising out of an alleged breach of contract. Party Limited's lawyer is of the opinion that the plaintiff's (customer's) claim against the company is unlikely to succeed. Another customer (Hard Luck) filed a lawsuit against Party Limited in December 2009. The customer is claiming damages amounting to $800,000 arising out of an alleged breach of contract. Party Limited's lawyer is of the opinion that the plaintiff's (customer's) claim against the company is unlikely to succeed. But the lawyer wants to settle this claim outside of the court system for a maximum of $200,000 to avoid bad publicity for the company. Party Limited's lawyer has started negotiations for a settlement with the lawyer representing Hard Luck. Party Limited year end is December 31, 2009. Party Limited financial statements for the year ended December 31, 2009 were approved by the Board of Directors on March30, 2010. Required: (a) Explain the accounting treatment for Soon Come lawsuit in the books of Party Limited for the financial year ended December 31, 2009. Support your answer with the relevant International Accounting Standard. (3 marks) (b) Explain the accounting treatment for Hard Luck lawsuit in the books of Party Limited for the financial year ended December 31,2009. Support your answer with the relevant International Accounting Standard. (8 marks) Question #3 You are required to provide an explanation to the accountant as to the appropriate treatment of the following events: (i) On 28 February 2011 a company's financial statements for the year ended 31 December 2010 were authorized for issue. The company sells some products on credit to a customer X before 31 December 2010. At 31 December 2010 the company's management had no doubt about the customer X's ability to pay the outstanding trade receivable of $200,000. However, in February 2011, before the financial statements were authorized for issue, the company is informed that customer X is going into liquidation because it has significant debt, has virtually no cash inflows and its accounting records are poorly maintained. Because of this, the trade receivables are deemed worthless. (9 marks) (ii) A dividend of $40,000 in respect of the financial year ended December 31, 2013 was declared in January 2014 and paid on 12 January 2014. The accountant included the dividend in the financial statement for the year ended 31 December 2013. (4 marks) Page 2 of 3 (iii) On 28 February 2011 XLR's financial statements for the year ended 31 December 2010 were authorized for issue. On 20 February 2011 a fire destroyed one of XLR's paper manufacturing plants which had a carrying amount of $2,000,000 at 31 December 2010. The XLR does not have insurance against fire damage. XLR remains a going concern. (4 marks) Question #2 A customer (Soon Come) filed a lawsuit against Party Limited in December 2009. The customer is claiming damages amounting to $1,500,00 arising out of an alleged breach of contract. Party Limited's lawyer is of the opinion that the plaintiff's (customer's) claim against the company is unlikely to succeed. Another customer (Hard Luck) filed a lawsuit against Party Limited in December 2009. The customer is claiming damages amounting to $800,000 arising out of an alleged breach of contract. Party Limited's lawyer is of the opinion that the plaintiff's (customer's) claim against the company is unlikely to succeed. But the lawyer wants to settle this claim outside of the court system for a maximum of $200,000 to avoid bad publicity for the company. Party Limited's lawyer has started negotiations for a settlement with the lawyer representing Hard Luck. Party Limited year end is December 31, 2009. Party Limited financial statements for the year ended December 31, 2009 were approved by the Board of Directors on March30, 2010. Required: (a) Explain the accounting treatment for Soon Come lawsuit in the books of Party Limited for the financial year ended December 31, 2009. Support your answer with the relevant International Accounting Standard. (3 marks) (b) Explain the accounting treatment for Hard Luck lawsuit in the books of Party Limited for the financial year ended December 31,2009. Support your answer with the relevant International Accounting Standard. (8 marks) Question #3 You are required to provide an explanation to the accountant as to the appropriate treatment of the following events: (i) On 28 February 2011 a company's financial statements for the year ended 31 December 2010 were authorized for issue. The company sells some products on credit to a customer X before 31 December 2010. At 31 December 2010 the company's management had no doubt about the customer X's ability to pay the outstanding trade receivable of $200,000. However, in February 2011, before the financial statements were authorized for issue, the company is informed that customer X is going into liquidation because it has significant debt, has virtually no cash inflows and its accounting records are poorly maintained. Because of this, the trade receivables are deemed worthless. (9 marks) (ii) A dividend of $40,000 in respect of the financial year ended December 31, 2013 was declared in January 2014 and paid on 12 January 2014. The accountant included the dividend in the financial statement for the year ended 31 December 2013. (4 marks) Page 2 of 3 (iii) On 28 February 2011 XLR's financial statements for the year ended 31 December 2010 were authorized for issue. On 20 February 2011 a fire destroyed one of XLR's paper manufacturing plants which had a carrying amount of $2,000,000 at 31 December 2010. The XLR does not have insurance against fire damage. XLR remains a going concern. (4 marks)
Expert Answer:
Answer rating: 100% (QA)
QUESTION 2 a In this situation as per the lawyers of the Party limited it is remote that the entity ... View the full answer
Related Book For
Intermediate Accounting
ISBN: 978-0176509736
10th Canadian Edition, Volume 1
Authors: Donald Kieso, Jerry Weygandt, Terry Warfield, Nicola Young,
Posted Date:
Students also viewed these accounting questions
-
Plaintiff Phyllis Toote filed a lawsuit against Pathmark Stores, Inc., a grocery store, and Canada Dry Bottling Company of New York, a bottler and distributor of soda. In her complaint, the plaintiff...
-
In January 2015, a customer filed a lawsuit against Fireens Boutique. The customer fell on an icy patch in the stores parking lot and broke an ankle in December. Fireens fiscal year- end is January...
-
Jane spends all of her $200 weekly income on two goods, X and Y. Her utility function is given by U(X, Y)= 4XY, If the price of X = $8/ unit and the price of Y = $20 a unit, how much of Y should she...
-
A bond currently has a price of $940. The current yield to maturity on the bond is 7%. If the yield decreases by 20 basis points, the price of the bond will go up to $960. Based on this information,...
-
Assume that Karib Corporations chief financial officer gave you the following information: net sales, $720,000; cost of goods sold, $350,000; loss from discontinued operations (net of income tax...
-
Suppose that A is open in Rn and f: A Rm. Prove that f is continuous on A if and only if f-l (V) is open in Rn for every open subset V of Rm.
-
The General Social Survey conducted a poll of 668 adults in which the subjects were asked whether they agree that the government should prohibit smoking in public places. In addition, each was asked...
-
Some financial data for three corporations are displayed here. a. Which firm appears to be excessively leveraged? b. Which firm appears to be employing financial leverage to the most appropriate...
-
i ) On 3 1 March 2 0 2 2 , Dextor Ltd changed to the revaluation model for its machinery; the FV of Machine Z on this date was $ 3 0 0 0 0 . Prepare the journal entries at 3 1 March 2 0 2 2 to...
-
Will your flight get you to your destination on time? The U.S. Bureau of Transportation Statistics reported the percentage of flights that were delayed each month from 1994 through October of 2013....
-
How can public policy decision makers, advocacy groups and marketing managers use consumer researches?
-
What are the key predictors of organizational citizenship behavior in high-pressure work environments, and how can leaders foster a culture that encourages such discretionary effort ?
-
The Apple Barn Inc. processes raw apples into two products; applesauce and apple juice. Sales value, production and sales information for September were as follows: Product Applesauce Apple juice...
-
How do differential association theories account for the transmission of deviant behavior patterns through interpersonal relationships and social networks ?
-
Explain the significance of emotional intelligence in organizational behavior. How does it affect leadership effectiveness, conflict resolution, and team dynamics ?
-
A horsepower is 550 ft-lb/s. A watt is 1 N-m/s. Determine how many watts are generated by the engines of the passenger jet if they are producing 7000 horsepower.
-
The cash-flow diagram is provided. a. If P = $2,000, A = $250, and i% = 9% per year, then N = ? b. If P = $2,000, A = $250, and N= 8 years, then i = ? c. If A = $250, 1% = 9% per year, and N=4 years,...
-
Draw a Feynman diagram for the reaction n + v p + .
-
Transactions follow for Whitehall Limited: March 10 Purchased goods billed at $25,000, terms 3/10, n/60. 11 Purchased goods billed at $26,575, terms 1115, n/30. 19 Paid invoice of March 10. 24...
-
The shareholders' equity section of Emerson Corporation as at December 31, 2014, follows: Net income of$24 million for 2014 reflects a total effective tax rate of25%. Included in the net income...
-
Activet Corporation, a Canadian-based international company that follows IFRS, including IAS 39, has the following securities in its portfolio of investments acquired for trading purposes and...
-
A test of controls on an internal control structure policy that involves segregation of duties and leaves no documentary trail is a. Inspection. b. Observation. c. Reperformance. d. Reconciliation.
-
In the evaluation of the internal control structure policies and procedures relating to the occurrence and completeness of certain payroll transactions, the assess ment of control risk for the...
-
During the course of obtaining an understanding of a clients internal control structure, Mr. Inves, CPA, discovered that, in a number of instances, the pertinent information had not been posted from...
Study smarter with the SolutionInn App