Concept explainers
Videos
Concept Introduction
Contingent Liabilities: Contingent liabilities are the potential obligations that arise due to uncertain future events which are based on (or arises from) past transactions or events. There are mainly three terms of likelihood that are used for the accounting treatment of contingent liabilities. These terms of likelihood are probable, reasonably possible and remote. ‘Virtually certain’ and ‘Remote’ are the two opposite ends of a likelihood scale. The contingent liabilities are treated in three ways in accounting as follows:
a. A
b. A contingent liability is described in notes to the financial statements if it is reasonably possible that a loss (or a future event) will occur, or if it is probable that a loss (or a future event) will occur but the company cannot reasonably estimate the amount of loss.
c. A contingent liability is neither recorded in the financial statements nor disclosed in notes to the financial statements if the probability (or likelihood) of the occurrence of the loss (or future event) is remote.
To Identify: The accounting treatment for each given claim as either (a) a liability that is recorded or (b) an item described in notes to its financial statements.
Given Info:
The following legal claims exist for Huprey Co.:
1. Huprey is a defendant in a pending lawsuit and estimates that it could result in damages of $1,250,000 and it is reasonably possible (which is a term of likelihood) that the plaintiff will win the case.
2. It is probable (which is a term of likelihood) for Huprey to face a loss on a pending lawsuit will occur but the amount of loss is not reasonably estimable.
3. It is highly probable that Huprey will lose a case and damages in the case are estimated at $3,500,000.
Want to see the full answer?
Check out a sample textbook solution
Chapter 11 Solutions
Fundamental Accounting Principles -Hardcover
- correct answer please managerial accountingarrow_forwardGiven the following information how much raw material was transferred to work in progress on January 31? Inventory on January 1 is $350,000, raw materials purchased in January are $860,000, and raw materials inventory on January 31 is $240,000. A: $880,000 B: $970,000 C: $650,000 D: $780,000arrow_forwardOn October 1, 2022, Vyom Industries purchased a machine for $180,000. The estimated service life is 8 years with a $20,000 residual value. Vyom records partial-year depreciation based on the number of months in service. Depreciation for 2022, using the double-declining-balance method, would be _. Solve thisarrow_forward
- cesi Required information [The following information applies to the questions displayed below] On July 23 of the current year, Dakota Mining Company pays $8,595,840 for land estimated to contain 9,768,000 tons of recoverable ore. It installs and pays for machinery costing $1,074,480 on July 25. The company removes and sells 502,500 tons of ore during its first five months of operations ending on December 31. Depreciation of the machinery is in proportion to the mine's depletion as the machinery will be abandoned after the ore is mined. Required: Prepare entries to record the following. (a) The purchase of the land. (b) The cost and installation of machinery. (c) The first five months' depletion assuming the land has a net salvage value of zero after the ore is mined. (d) The first five months' depreciation on the machinery. Complete this question by entering your answers in the tabs below. Required A Required B Required C1 Required C2 Required D1 Required D2arrow_forwardDuring October, the first month of the fiscal year, sales totaled $750,000, and the cost of merchandise available for sale totaled $680,000. Estimate the cost of the merchandise inventory as of October 31, based on an estimated gross profit rate of 35%. Answerarrow_forwardgeneral accountingarrow_forward
AccountingAccountingISBN:9781337272094Author:WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.Publisher:Cengage Learning,
Accounting Information SystemsAccountingISBN:9781337619202Author:Hall, James A.Publisher:Cengage Learning,
Horngren's Cost Accounting: A Managerial Emphasis...AccountingISBN:9780134475585Author:Srikant M. Datar, Madhav V. RajanPublisher:PEARSON
Intermediate AccountingAccountingISBN:9781259722660Author:J. David Spiceland, Mark W. Nelson, Wayne M ThomasPublisher:McGraw-Hill Education
Financial and Managerial AccountingAccountingISBN:9781259726705Author:John J Wild, Ken W. Shaw, Barbara Chiappetta Fundamental Accounting PrinciplesPublisher:McGraw-Hill Education