What makes product warranties considered as contingent liabilities? Also, what Generally Accepted Accounting Principle supports how accountants record contingent liabilities?
What makes product warranties considered as contingent liabilities? Also, what Generally Accepted Accounting Principle supports how accountants record contingent liabilities?
What makes product warranties considered as contingent liabilities? Also, what Generally Accepted Accounting Principle supports how accountants record contingent liabilities?
What makes product warranties considered as contingent liabilities?
Also, what Generally Accepted Accounting Principle supports how accountants record contingent liabilities?
Transcribed Image Text:QUESTION 1
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Would you rather borrow $10,000 by issuing (a) a 90-day, 15 percent note or (b) a 90-day, discounted note discounted at 15 percent?
Why or why not?
Explain your answer based on what you have read about discounted notes.
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I would choose to borrow the $10,000. Becasue, if you did the 15 precent note it would be discounted by 15% and you wouldn't get the full ammount. You would would have to do $10,000/ 15% interest rate 90 days / 360 days = $375.
You would be cutting yourself short on money by only receiving $9625 instead of the full amoount of $10,000 and the intrest still coming out to be $375 either way you go about it.
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Definition Definition Costs that a business is responsible for paying, should a particular event potentially occur in the future. Also called a potential liability, a contingent liability is generally recorded only when the amount of liability can be reasonably estimated and the contingency is likely to occur shortly. The Generally Accepted Accounting Principles (GAAP) and International Financial Reporting Principles (IFRS) make it mandatory for the companies to record any contingent liability taking the principles of full disclosure, materiality, and prudence into consideration.
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