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From page 8-4 of the VLN, which of the following contingent situations would the company have to record as a liability?

From page 8-4 of the VLN, which of the following contingent situations would the company have to record as a liability?

FINANCIAL ACCOUNTING
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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Deferred Revenue cash received before a good or service is provided Sales taxes payable Current Portion of Long-Term Debt -the principal amount of the debt coming due within a year of the balance sheet date Practice United Supply has a $25 million liability at December 31, 20XC, of which $5 million of the principal and the accrued interest is payable in each of the next five years. How should the liability be shown on the balance sheet at December 31, 20XC? Current: Long-term: What about interest on the loan? PART B: CONTINGENCIES Loss Contingency-an existing uncertain situation that might result in a loss A contingent liability is a “potential" liability/loss that could arise in the future. -contingent liabilities are reported on the financial statements and disclosed if they are probable and the liability can be reasonably estimated. -contingent liabilities are only disclosed in the notes if they are probable and cannot be estimated; OR if they are reasonably possible (regardless if they can be estimated or not). -if the possibility of liability is remote it normally is not reported or disclosed. Estimable Within a Range -use the more likely amount -no “more likely amount" use lower loss amount and disclose the potential additional loss. Lawsuits Product Warranties and Guarantees (estimated liability) Warranty liabilityàWarranty expense (based on amounts)-matching principle -current liability if warranty period is for a year or less -noncurrent liability if warranty period is more than a year. estimated
Transcribed Image Text:Deferred Revenue cash received before a good or service is provided Sales taxes payable Current Portion of Long-Term Debt -the principal amount of the debt coming due within a year of the balance sheet date Practice United Supply has a $25 million liability at December 31, 20XC, of which $5 million of the principal and the accrued interest is payable in each of the next five years. How should the liability be shown on the balance sheet at December 31, 20XC? Current: Long-term: What about interest on the loan? PART B: CONTINGENCIES Loss Contingency-an existing uncertain situation that might result in a loss A contingent liability is a “potential" liability/loss that could arise in the future. -contingent liabilities are reported on the financial statements and disclosed if they are probable and the liability can be reasonably estimated. -contingent liabilities are only disclosed in the notes if they are probable and cannot be estimated; OR if they are reasonably possible (regardless if they can be estimated or not). -if the possibility of liability is remote it normally is not reported or disclosed. Estimable Within a Range -use the more likely amount -no “more likely amount" use lower loss amount and disclose the potential additional loss. Lawsuits Product Warranties and Guarantees (estimated liability) Warranty liabilityàWarranty expense (based on amounts)-matching principle -current liability if warranty period is for a year or less -noncurrent liability if warranty period is more than a year. estimated
From page 8-4 of the VLN, which of the following contingent situations would the company have to record as a liability? O It is probable and can be estimated. O It is probable but cannot be estimated. O It is reasonably possible and can be estimated. O It is reasonably possible and cannot be estimated.
Transcribed Image Text:From page 8-4 of the VLN, which of the following contingent situations would the company have to record as a liability? O It is probable and can be estimated. O It is probable but cannot be estimated. O It is reasonably possible and can be estimated. O It is reasonably possible and cannot be estimated.
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