Part $2-11$ Short Answer Questions $(81$ marks$)$

Question $1(6$ marks$)$

The following items pertain to the $2023$ operations of XYZ$.$ XYZ has a December $31$ year end.

a$.$ A lawsuit for $$5$ million was brought against XYZ by a customer for lost profits after an information

system failure. Lawyers estimate that there is a $95\%$ chance that the lawsuit will result in a $$3\mathrm{.}000\mathrm{.}000$

payment.

b$.$ XYZ issued a purchase order for merchandise inventory with an invoice price of S$500,000$ to be

delivered in April $2024.$

c$.$ XYZ has issued $2,000$ coupons allowing customers to get a $$200$ cash rebate when they purchase a

S$1,000$ technology hardware and software bundle from a retailer. Based on their prior experience, only

$10\%$ of these coupons will be used. The technology bundle will still sell at a profit.

Required: State how each of these items will affect the financial statements of XYZ at year$-$end $2023$ and

provide a brief explanation of why.

Item

b$.$

C

Accounting treatment