B215 L10 LIABILITIES & CONTINGENT LIABILITIES

Teens Fashion Ltd (“TF”) is sued by a customer for $20,000 compensation as a bracelet bought from the company had caused her skin rash.  TF’s lawyer advised that in most cases, such customers who have sensitive skin will be unsuccessful with their compensation claims.

• Do Nothing

• Record a Payable

• Record a Provision

• Disclose as a Contingent Liability in the Notes to the Accounts

Wallace Inc (“Wallace”) was sued by a customer for selling faulty light bulbs which exploded. The damage to the customer’s house was assessed to be $30,000.  Lawyers have advised that it is highly probable that Wallace would have to compensate the customer for the damage caused since the light bulbs are still under the warranty period.

• Do Nothing

• Make a provision:

  Dr Lawsuit Expense,

  Cr Cash

• Make a provision:

  Dr Lawsuit Expense,

  Cr Provision for Lawsuit

• Disclose in the Notes to Accounts as Contingent Liability

Tap Ltd (“Tap”) borrowed a 3-year bank loan of $40,000 on 1 January 2021.  The loan is to be paid off in 2 equal repayments in each year.  

 

Below is the repayment schedule.

Based on the repayment schedule, Tap has to repay ________________ on every payment date.

• $1,000

• $6,262

• $7,262

• $33,738

Tap Ltd (“Tap”) borrowed a 3-year bank loan of $40,000 on 1 January 2021.  The loan is to be paid off in 2 equal repayments in each year.  

 

         Below is the repayment schedule.

The amount of interest expense incurred in 2021 is ________________.

• $1,000

• $1,843.45

• $2,526.44

• $7,262.00

Tap Ltd (“Tap”) borrowed a 3-year bank loan of $40,000 on 1 January 2021.  The loan is to be paid off in 2 equal repayments in each year.  

 

         Below is the repayment schedule.

“Current Portion of Bank Loan” in the Statement of Financial Position as at 31 December 2021 is ______.

• $12,680.55

• $13,322.50

• $13,996.96

• $34,737.39

4.          Tap Ltd (“Tap”) borrowed a 3-year bank loan of $40,000 on 1 January 2021.  The loan is to be paid off in 2 equal repayments in each year.  

 

         Below is the repayment schedule.

“Non-Current Portion of Bank Loan” in the Statement of Financial Position as at 31 December 2022 is ____.

• $0

• $7,084.88

• $12,680.55

• $13,996.96