1. A manufacturer of household appliances has potential costs due to the discovery of a defect in one of its products. The occurrence of the loss is probable and the costs can be reasonably estimated. This present obligation should be:accrued and disclosed as a liability.neither accrued nor disclosed as a liability.accrued as a liability but not disclosed.disclosed but not accrued as a liability.2. A contingency that need not be disclosed in the financial statements or in the notes thereto is:pending litigation.possibility of strike.deficiency tax assessment.note receivable discounted.3. A loss contingency that should be accrued is:note receivable discounted.pending lawsuit.tax in dispute.estimated claim under a service warranty on new products sold.4. An item that is not a contingent liability is:premium offer to customers for labels or box tops.accommodation endorsement on customer note.additional compensation that may be payable on a dispute nowbeing arbitrated. note receivable discounted.5. A contingent liability:has a most probable value of zero but may require a payment if a given future event occurs.definitely exists as a liability but its amount or due date is indeterminate.is commonly associated with operating loss carry-forwards.is not disclosed in the financial statements.6. Which of the following statements is true concerning contingent liabilities?Such liabilities should include obligations of known existence but of unknown amount.If the definite amount is involved, it is not a contingent liability.Such liabilities are generally reported and totaled with other liabilities to make up the liability section of most balance sheets.Such liabilities should include obligations known in amount but unknown in existence.

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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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1. A manufacturer of household appliances has potential costs due to the discovery of a defect in one of its products. The occurrence of the loss is probable and the costs can be reasonably estimated. This present obligation should be:

accrued and disclosed as a liability.
neither accrued nor disclosed as a liability.
accrued as a liability but not disclosed.
disclosed but not accrued as a liability.

2. A contingency that need not be disclosed in the financial statements or in the notes thereto is:

pending litigation.
possibility of strike.
deficiency tax assessment.
note receivable discounted.

3. A loss contingency that should be accrued is:

note receivable discounted.
pending lawsuit.
tax in dispute.
estimated claim under a service warranty on new products sold.

4. An item that is not a contingent liability is:

premium offer to customers for labels or box tops.
accommodation endorsement on customer note.
additional compensation that may be payable on a dispute now
being arbitrated. note receivable discounted.

5. A contingent liability:

has a most probable value of zero but may require a payment if a given future event occurs.
definitely exists as a liability but its amount or due date is indeterminate.
is commonly associated with operating loss carry-forwards.
is not disclosed in the financial statements.

6. Which of the following statements is true concerning contingent liabilities?

Such liabilities should include obligations of known existence but of unknown amount.
If the definite amount is involved, it is not a contingent liability.
Such liabilities are generally reported and totaled with other liabilities to make up the liability section of most balance sheets.
Such liabilities should include obligations known in amount but unknown in existence.

Definition Definition Financial statement that provides a snapshot of an organization's financial position at a specific point in time. It summarizes a company's assets, liabilities, and shareholder's equity, detailing what the company owns, what it owes, and what is left over for its owners. The balance sheet serves as a crucial tool to assess the financial health and stability of a company, as well as to help management make informed decisions about its future investments and financial obligations.

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