
Concept explainers
Contingent Liabilities are liabilities which arise from past events and it shall materialize its existence on occurrence or non-occurrence of a future event which may or may not happen.
Sell-Soft is the defendant in numerous law-suits claiming unfair trade practices. It has strong incentives not to disclose these contingent liabilities. GAAP requires the company to report the same. It is necessary for a company to follow the accounting principles laid down in the GAAP. Sell-Soft should hence disclose the same in their statements.
Requirement 1:
To discuss: the reasons of why a company would refrain from disclosing the contingent liabilities in the books of accounts
Requirement 2:
To discuss: the harm caused to bank in the event of a company not disclosing its contingent liabilities
Requirement 3:
the ethical tightrope while reporting contingent liabilities and the reporting responsibilities

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Chapter 11 Solutions
Horngren's Accounting, The Financial Chapters (11th Edition) - Standalone Book
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- No ai Depreciation Expense is shown on the income statement in order to achieve accounting's matching principle. True Falsearrow_forwardno aiOne company might depreciate a new computer over three years while another company might depreciate the same model computer over five years...and both companies are right. True Falsearrow_forwardno ai An asset's useful life is the same as its physical life? True Falsearrow_forward
- no ai Depreciation Expense reflects an allocation of an asset's original cost rather than an allocation based on the economic value that is being consumed. True Falsearrow_forwardThe purpose of depreciation is to have the balance sheet report the current value of an asset. True Falsearrow_forwardDepreciation Expense shown on a company's income statement must be the same amount as the depreciation expense on the company's income tax return. True Falsearrow_forward
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