ABC Inc. has is being sued by a customer. The plaintiff (customer) claims $50,000 for product deficiencies. The controller discussed the claim with legal counsel and the lawyer notes that the company is likely to lose the suit with an estimated payout of $50,000. The controller has identified this as a contingent loss (liability) and has accrued it in the financial statements and prepared the note disclosure. The financial statement note disclosure states the following: "During the year, ABC Inc. received a claim for an alleged product deficiency. ABC Inc. is defending the action however legal advice at this time indicated that is likely the claim could result in a loss for ABC Inc." ABC Inc. reports under ASPE. Required: a) Provide the path to the appropriate reference in the Handbook assuming the entity follows ASPE. b) Indicate what is missing from the note disclosure, if anything, for ABC Inc.

ABC Inc. has is being sued by a customer. The plaintiff (customer) claims $50,000 for product deficiencies. The controller discussed the claim with legal counsel and the lawyer notes that the company is likely to lose the suit with an estimated payout of $50,000. The controller has identified this as a contingent loss (liability) and has accrued it in the financial statements and prepared the note disclosure. The financial statement note disclosure states the following: "During the year, ABC Inc. received a claim for an alleged product deficiency. ABC Inc. is defending the action however legal advice at this time indicated that is likely the claim could result in a loss for ABC Inc." ABC Inc. reports under ASPE. Required: a) Provide the path to the appropriate reference in the Handbook assuming the entity follows ASPE. b) Indicate what is missing from the note disclosure, if anything, for ABC Inc.

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Concept explainers

Contingent Liabilities and Provisions

A contingent liability can be defined as a liability the occurrence of which is dependent upon the happening of an uncertain future event. It is generally recorded in the books only when the amount of liability can be reasonably estimated and the contingency is likely to occur shortly.

Question

ABC Inc. has is being sued by a customer. The
plaintiff (customer) claims $50,000 for product
deficiencies. The controller discussed the
claim with legal counsel and the lawyer notes
that the company is likely to lose the suit with
an estimated payout of $50,000. The
controller has identified this as a contingent
loss (liability) and has accrued it in the
financial statements and prepared the note
disclosure.
The financial statement note disclosure states
the following:
"During the year, ABC Inc. received a claim for
an alleged product deficiency. ABC Inc. is
defending the action however legal advice at
this time indicated that is likely the claim
could result in a loss for ABC İnc."
ABC Inc. reports under ASPE.
Required:
a) Provide the path to the appropriate
reference in the Handbook assuming the
entity follows ASPE.
b) Indicate what is missing from the note
disclosure, if anything, for ABC Inc.

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