6th Edition

ISBN: 9781265554927

Author: PHILLIPS

Publisher: MCG

Concept explainers

Reporting of cash flows means a statement of cash flow which is a financial statement. A cash flow statement is prepared by gathering all the data regarding inflows and outflows of a company. The cash flow statement includes cash inflows and outflows fro…

Balance Sheet

A balance sheet is an integral part of the set of financial statements of an organization that reports the assets, liabilities, equity (shareholding) capital, other short and long-term debts, along with other related items. A balance sheet is one of the …

Financial Statements

Financial statements are written records of an organization which provide a true and real picture of business activities. It shows the financial position and the operating performance of the company. It is prepared at the end of every financial cycle. It…

Owner's Capital

Before we begin to understand what Owner’s capital is and what Equity financing is to an organization, it is important to understand some basic accounting terminologies. A double-entry bookkeeping system Normal account balances are those which are expect…

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Textbook Question

Chapter 10, Problem 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 4CP

Chapter 10, Problem 6CP

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Chapter 10 Solutions

FUNDAMENTALS OF FINANCIAL ACCOUNTING LL

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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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