Question 2:

A: Waterway Shoes Foot Inc. is involved in litigation regarding a faulty product sold in a prior year. The company has consulted with its attorney and determined that it is possible that they may lose the case. The attorneys estimated that there is a 40% chance of losing. If this is the case, their attorney estimated that the amount of any payment would be $802000. What is the required journal entry as a result of this litigation?

Debit Litigation Expense for $802000 and credit Litigation liability for $802000.

No journal entry is required.

Debit Litigation Expense for $320800 and credit Litigation Liability for $320800.

Debit Litigation Expense for $481200 and credit Litigation Liability for $481200.

B: On September 1, 2020, Marigold Corp. issued a note payable to Fidelity Bank in the amount of $2676000, bearing interest at 12%, and payable in three equal annual principal payments of $892000. On this date, the bank's prime rate was 13%. The first payment for interest and principal was made on September 1, 2021. At December 31, 2021, Marigold should record accrued interest payable of

$71360.

$115960.

$107040.

$231920.

C:

The following information is available for Ivanhoe Companys patents:

Cost	$2940000
Carrying amount	1420000
Expected future net cash flows	1110000
Fair value	1050000

Ivanhoe would record a loss on impairment of

$310000.

$1420000.

$1830000.

$370000.