PROBLEM 5-7

PROBLEM 5 Below are three independent situations. 1. In August, 2020 a worker was injured in the factory in an accident partially the result of his own negligence. The worker has sued Wesley Co. for P800,000. Counsel believes it is reasonably possible that the outcome of the suit will be unfavorable and that the settlement would cost the company from P250,000 to P500,000. 2. A suit for breach of contract seeking damages of P2,400,000 was filed by an author against Greer Co. on October 4, 2020. Greer's legal counsel believes that an unfavorable outcome is probable. A reasonable estimate of the award to the plaintiff is between P600,000 and P1,800,000. No amount within this range is a better estimate of potential damages than any other amount. 3. Quinn is involved in a pending court case. Peete's lawyers believe it is probable that Quinn will be awarded damages of P1,000,000. 1. How much contingent liability should be accrued? PROBLEM 6 On January 1, 2020, Crown Company sold property to Leary Company. There was no established exchange price for the property, and Leary gave Crown a P2,000,000 zero-interest-bearing note payable in 5 equal annual installments of P400,000, with the first payment due December 31, 2020. The prevailing rate of interest for a note of this type is 9%. The present value of the note at 9% was P1,442,000 at January 1, 2020. 1. What should be the balance of the Discount on Notes Payable account on the books of Leary at December 31, 2020 after adjusting entries are made, assuming that the effective-interest method is used? PROBLEM 7 Downing Company issues P5,000,000, 6%, 5-year bonds dated January 1, 2020 on January 1, 2020. The bonds pay interest semiannually on June 30 and December 31. The bonds are issued to yield 5%. What are the proceeds from the bond issue? 2.5% 3.0% 5.0% 6.0% PV of a single sum for 5 periods 0.88385 0.86261 0.78353 0.74726 PV of a single sum for 10 periods 0.78120 0.74409 0.61391 0.55839 PV of an annuity for 5 periods 4.64583 4.57971 4.32948 4.21236 PV of an annuity for 10 periods 8.75206 8.53020 7.72173 7.36009 1. What are the proceeds from the bond issue