Contingent liability : It is a potential liability of a company that depends on a future event. It is the result of an uncertain event. For paying a contingent liability, some event should happen in the future. The recording of contingent liability is based on the following likelihoods of the event occur in future: Remote Reasonably possible Probable To state: the major business units of Incorporation R.

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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.

Chapter 11, Problem 11.7CP

A.

To determine

Contingent liability: It is a potential liability of a company that depends on a future event. It is the result of an uncertain event. For paying a contingent liability, some event should happen in the future. The recording of contingent liability is based on the following likelihoods of the event occur in future:

Remote

Reasonably possible

Probable

To state: the major business units of Incorporation R.

B.

To determine

To explain: the reason for Incorporation R requiring so many pages of contingency liabilities.

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Recently, Abercrombie & Fitch has been implementing a turnaround strategy since its sales had been falling for the past few years (11% decrease in 2014, 8% in 2015, and just 3% in 2016.) One part of Abercrombie's new strategy has been to abandon its logo-adorned merchandise, replacing it with a subtler look. Abercrombie wrote down $20.6 million of inventory, including logo-adorned merchandise, during the year ending January 30, 2016. Some of this inventory dated back to late 2013. The write-down was net of the amount it would be able to recover selling the inventory at a discount. The write-down is significant; Abercrombie's reported net income after this write-down was $35.6 million. Interestingly, Abercrombie excluded the inventory write-down from its non-GAAP income measures presented to investors; GAAP earnings were also included in the same report. Question: What impact would the write-down of inventory have had on Abercrombie's expenses, Gross margin, and Net income?

Recently, Abercrombie & Fitch has been implementing a turnaround strategy since its sales had been falling for the past few years (11% decrease in 2014, 8% in 2015, and just 3% in 2016.) One part of Abercrombie's new strategy has been to abandon its logo-adorned merchandise, replacing it with a subtler look. Abercrombie wrote down $20.6 million of inventory, including logo-adorned merchandise, during the year ending January 30, 2016. Some of this inventory dated back to late 2013. The write-down was net of the amount it would be able to recover selling the inventory at a discount. The write-down is significant; Abercrombie's reported net income after this write-down was $35.6 million. Interestingly, Abercrombie excluded the inventory write-down from its non-GAAP income measures presented to investors; GAAP earnings were also included in the same report. Question: What impact would the write-down of inventory have had on Abercrombie's assets, Liabilities, and Equity?

Answer 2

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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.

Chapter 11, Problem 11.7CP

A.

To determine

Contingent liability: It is a potential liability of a company that depends on a future event. It is the result of an uncertain event. For paying a contingent liability, some event should happen in the future. The recording of contingent liability is based on the following likelihoods of the event occur in future:

Remote

Reasonably possible

Probable

To state: the major business units of Incorporation R.

B.

To determine

To explain: the reason for Incorporation R requiring so many pages of contingency liabilities.

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Answer 3

Question

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.

Chapter 11, Problem 11.7CP

A.

To determine

Contingent liability: It is a potential liability of a company that depends on a future event. It is the result of an uncertain event. For paying a contingent liability, some event should happen in the future. The recording of contingent liability is based on the following likelihoods of the event occur in future:

Remote

Reasonably possible

Probable

To state: the major business units of Incorporation R.

B.

To determine

To explain: the reason for Incorporation R requiring so many pages of contingency liabilities.

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Answer 4

Question

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.

Chapter 11, Problem 11.7CP

A.

To determine

Contingent liability: It is a potential liability of a company that depends on a future event. It is the result of an uncertain event. For paying a contingent liability, some event should happen in the future. The recording of contingent liability is based on the following likelihoods of the event occur in future:

Remote

Reasonably possible

Probable

To state: the major business units of Incorporation R.

B.

To determine

To explain: the reason for Incorporation R requiring so many pages of contingency liabilities.

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Answer 5

Chapter 11, Problem 11.7CP

A.

To determine

Contingent liability: It is a potential liability of a company that depends on a future event. It is the result of an uncertain event. For paying a contingent liability, some event should happen in the future. The recording of contingent liability is based on the following likelihoods of the event occur in future:

Remote

Reasonably possible

Probable

To state: the major business units of Incorporation R.

B.

To determine

To explain: the reason for Incorporation R requiring so many pages of contingency liabilities.

Answer 6

Chapter 11, Problem 11.7CP

A.

To determine

Contingent liability: It is a potential liability of a company that depends on a future event. It is the result of an uncertain event. For paying a contingent liability, some event should happen in the future. The recording of contingent liability is based on the following likelihoods of the event occur in future:

Remote

Reasonably possible

Probable

To state: the major business units of Incorporation R.

Answer 7

Chapter 11, Problem 11.7CP

A.

To determine

Contingent liability: It is a potential liability of a company that depends on a future event. It is the result of an uncertain event. For paying a contingent liability, some event should happen in the future. The recording of contingent liability is based on the following likelihoods of the event occur in future:

Remote

Reasonably possible

Probable

To state: the major business units of Incorporation R.

Answer 8

B.

To determine

To explain: the reason for Incorporation R requiring so many pages of contingency liabilities.

Answer 9

B.

To determine

To explain: the reason for Incorporation R requiring so many pages of contingency liabilities.

Answer 10

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Answer 11

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Answer 13

Ch. 11 - Does a discounted note payable provide credit...Ch. 11 - Employees are subject to taxes withheld from their...Ch. 11 - Prob. 3DQ Ch. 11 - Prob. 4DQ Ch. 11 - Prob. 5DQ Ch. 11 - Prob. 6DQ Ch. 11 - To match revenues and expenses properly, should...Ch. 11 - Prob. 8DQ Ch. 11 - When should the liability associated with a...Ch. 11 - Prob. 10DQ

Solution Summary: The author explains that Incorporation R manufactures and distributes tobacco products and has more than 100 pending cases, out of which 28 class actions and 2 health-related issues.

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To explain: the reason for Incorporation R requiring so many pages of contingency liabilities.

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