PCR Pte Ltd is a company based in Singapore and sells health diagnostic kits. It refers...

   

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PCR Pte Ltd is a company based in Singapore and sells health diagnostic kits. It refers t the SFRSS when preparing its financial statements. Its financial year-end is 31 December and it does annual adjusting entries. Before accounting for the events in Parts 1 to 3 below, the company's preliminary trial balance as at 31 December 20X2 is as follows: Cash Accounts receivable Inventory Office supplies Equipment Accumulated depreciation Accounts payable Share capital Retained earnings Revenue Cost of goods sold Salary expense Administrative expenses Dr S 303,000 165,000 479,000 15,000 920,000 Cr S 170,000 150,000 1,169,000 33,000 880,000 310,000 120,000 90,000 2,402,000 2,402,000 The following events occurred in 20X2 but have not yet been accounted for: Part 1 On 31 December 20X2, management sold some more kits at the price of $96,000. The cost of the kits sold for this transaction was $48,000. Journal entries for the sales transactions have been recorded, but not for the matching cost of goods sold. Part 2 PCR Pte Ltd began selling a new ear diagnostic kit in the second quarter of 20X2, whereby customers are offered a 1-year warranty. Based on the industry trend for similar products, the average cost of repairs for a diagnostic kit under warranty is estimated to be 3% of the sales price. The total amount of sales of the ear diagnostic kit for 20X2 was $180,000. Actual claims against the warranty during 20X2 amounted to $3,500. Journal entries for the sales transactions have been recorded, but not for the warranty estimates or claims. Assume that this is the first time the company is offering a warranty to its customers and that the account Inventory is to be credited for claims. Part 3 A competitor, Russi Pte Ltd, has sued PCR Pte Ltd for infringement of patent rights in the production of a heart diagnostic kit, trying to claim $1,500,000 in damages. The lawyers advised that the likelihood of PCR Pte Ltd losing the lawsuit is about 20%, which is considered less than probable but not remote. The company was also sued by a former employee, Ukray, for gender discrimination. The lawyers hold the view that it is highly probable that PCR Pte Ltd will be found liable for damages amounting to $300,000. Both amounts cited are deemed to be reliable estimates. Both lawsuits are on-going and judgement on both lawsuits is expected to be delivered in 20X3. Question 2a Illustrate the accounting treatment required by the applicable SFRSs by preparing the necessary journal entries required to be passed by PCR Pte Ltd relating to each event in 20X2. Create new accounts where necessary and include journal narratives. Please show all workings clearly to get full credit. If journal entries are not required, state the necessary accounting treatment instead and the reason(s) for the treatment stated. (15 marks) Question 2b Present a partial Statement of Financial Position as at 31 December 20X2, which includes the effects of the events in Parts 1 to 3 above. Assume no taxes. (7 marks) PCR Pte Ltd is a company based in Singapore and sells health diagnostic kits. It refers t the SFRSS when preparing its financial statements. Its financial year-end is 31 December and it does annual adjusting entries. Before accounting for the events in Parts 1 to 3 below, the company's preliminary trial balance as at 31 December 20X2 is as follows: Cash Accounts receivable Inventory Office supplies Equipment Accumulated depreciation Accounts payable Share capital Retained earnings Revenue Cost of goods sold Salary expense Administrative expenses Dr S 303,000 165,000 479,000 15,000 920,000 Cr S 170,000 150,000 1,169,000 33,000 880,000 310,000 120,000 90,000 2,402,000 2,402,000 The following events occurred in 20X2 but have not yet been accounted for: Part 1 On 31 December 20X2, management sold some more kits at the price of $96,000. The cost of the kits sold for this transaction was $48,000. Journal entries for the sales transactions have been recorded, but not for the matching cost of goods sold. Part 2 PCR Pte Ltd began selling a new ear diagnostic kit in the second quarter of 20X2, whereby customers are offered a 1-year warranty. Based on the industry trend for similar products, the average cost of repairs for a diagnostic kit under warranty is estimated to be 3% of the sales price. The total amount of sales of the ear diagnostic kit for 20X2 was $180,000. Actual claims against the warranty during 20X2 amounted to $3,500. Journal entries for the sales transactions have been recorded, but not for the warranty estimates or claims. Assume that this is the first time the company is offering a warranty to its customers and that the account Inventory is to be credited for claims. Part 3 A competitor, Russi Pte Ltd, has sued PCR Pte Ltd for infringement of patent rights in the production of a heart diagnostic kit, trying to claim $1,500,000 in damages. The lawyers advised that the likelihood of PCR Pte Ltd losing the lawsuit is about 20%, which is considered less than probable but not remote. The company was also sued by a former employee, Ukray, for gender discrimination. The lawyers hold the view that it is highly probable that PCR Pte Ltd will be found liable for damages amounting to $300,000. Both amounts cited are deemed to be reliable estimates. Both lawsuits are on-going and judgement on both lawsuits is expected to be delivered in 20X3. Question 2a Illustrate the accounting treatment required by the applicable SFRSs by preparing the necessary journal entries required to be passed by PCR Pte Ltd relating to each event in 20X2. Create new accounts where necessary and include journal narratives. Please show all workings clearly to get full credit. If journal entries are not required, state the necessary accounting treatment instead and the reason(s) for the treatment stated. (15 marks) Question 2b Present a partial Statement of Financial Position as at 31 December 20X2, which includes the effects of the events in Parts 1 to 3 above. Assume no taxes. (7 marks)

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2a Journal Entries for Each Event Event 2 Warranty Estimate and Claims Date 31 Dec 20X2 Journal Entr... View the full answer