Loose-leaf for Fundamentals of Financial Accounting with Connect

5th Edition

ISBN: 9781259619007

Author: Fred Phillips Associate Professor

Publisher: McGraw-Hill Education

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Textbook Question

Chapter 10, Problem 10.5CP

Determining Financial Statement Reporting of Contingent Liabilities

Brunswick Corporation is a multinational company that manufactures and sells marine and recreational products. A prior annual report contained the following information:

Litigation

A jury awarded $44.4 million in damages in a suit brought by Independent Boat Builders, Inc., a buying group of boat manufacturers and its 22 members. Under the antitrust laws, the damage award has been tripled and the plaintiffs will be entitled to their attorney’s fees and interest. The Company has filed an appeal contending the verdict was erroneous as a matter of law, as to both liability and damages.

Required:

If Brunswick recorded a liability for $133.2 million (3 × $44.4 million), which of the following best describes the likelihood of having to pay this amount: (a) probable, (b) reasonably possible, or (c) remote?

TIP: Refer to Exhibit 10.9.

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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Chapter 10, Problem 10.4CP

Chapter 10, Problem 10.6CP

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Chapter 10 Solutions

Loose-leaf for Fundamentals of Financial Accounting with Connect

Ch. 10 - Prob. 1Q Ch. 10 - Prob. 2Q Ch. 10 - What three factors influence the dollar amount...Ch. 10 - Prob. 4Q Ch. 10 - Prob. 5Q Ch. 10 - Prob. 6Q Ch. 10 - Prob. 7Q Ch. 10 - If a company has a long-term loan that has only...Ch. 10 - What are the reasons that some bonds are issued at...Ch. 10 - Prob. 10Q

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Solution Summary: The author identifies the correct option related to contingent liability. The lawsuit against Company B has a high chance of occurring in future.

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