Contingent liability : A contingent liability is not an actual liability but a potential liability which may or may not convert into an actual liability on the occurrence or non-occurrence of an event. The contingent liabilities which are probable and the amount can be reasonably estimated are recorded in the books of accounts. If the contingency is not probable of occurring or the amount cannot be ascertained, then it will not be recorded in the books but will be disclosed in the notes to the accounts. To explain: The contingent liability with examples

Question

Want to see the full answer?

Answer 1

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 13RQ

To determine

Contingent liability:

A contingent liability is not an actual liability but a potential liability which may or may not convert into an actual liability on the occurrence or non-occurrence of an event. The contingent liabilities which are probable and the amount can be reasonably estimated are recorded in the books of accounts. If the contingency is not probable of occurring or the amount cannot be ascertained, then it will not be recorded in the books but will be disclosed in the notes to the accounts.

To explain:

The contingent liability with examples

Expert Solution & Answer

Want to see the full answer?

Check out a sample textbook solution

See solution

Students have asked these similar questions

PLEASE HELP ME WITH THIS ACCOUNTING PROBLEM

Let's say that Dr. Tim’s Company purchased a heavy-duty truck on July 1, 2021, for $30,000. It was estimated that it would have a useful life of 10 years and then would have a trade-in value of $6,000. The company uses the straight-line method. It was traded on August 1, 2026, for a similar truck costing $42,000; $16,000 was allowed as trade-in value (also fair value) on the old truck and $26,000 was paid in cash. A comparison of expected cash flows for the trucks includes the exchange lacks commercial substance. What is the entry to record the trade-in? Truck (new) $42,000 Accumulated Depreciation $12,200 ($30,000 - $6,000) x (61 months / 120 months) Loss on Disposal of Trucks $1,800 ($30,000 - $12,200 - $16,000 [trade-in] Trucks (old)…

16. Candy Company projects the following sales: BB (Click on the icon to view the projected sales.) Candy collects sales on account in the month after the sale. The Accounts Receivable balance on January 1 is $12,300, which represents December's sales on account. Candy projects the following cash receipts from customers: BEE (Click on the icon to view the cash receipts from customers.) Recalculate cash receipts from customers if total sales remain the same but cash sales are only 5% of the total. Begin by computing the cash sales and sales on account for each month if cash sales are only 5% of the total. January February March Cash sales (5%) Sales on account (95%) Total sales $ 31,000 $ 27,000 $ 33,000 Data table X I Data table - X January February March January February March Cash sales (10%) $ 3,100 $ 27,900 Sales on account (90%) 2,700 $ 24,300 3,300 29,700 Cash receipts from cash sales Cash receipts from sales on account $ 3,100 $ 2,700 $ 12,300 27,900 3,300 24,300 $ 31,000 $…

Answer 2

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 13RQ

To determine

Contingent liability:

A contingent liability is not an actual liability but a potential liability which may or may not convert into an actual liability on the occurrence or non-occurrence of an event. The contingent liabilities which are probable and the amount can be reasonably estimated are recorded in the books of accounts. If the contingency is not probable of occurring or the amount cannot be ascertained, then it will not be recorded in the books but will be disclosed in the notes to the accounts.

To explain:

The contingent liability with examples

Expert Solution & Answer

Want to see the full answer?

Check out a sample textbook solution

See solution

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 13RQ

To determine

Contingent liability:

A contingent liability is not an actual liability but a potential liability which may or may not convert into an actual liability on the occurrence or non-occurrence of an event. The contingent liabilities which are probable and the amount can be reasonably estimated are recorded in the books of accounts. If the contingency is not probable of occurring or the amount cannot be ascertained, then it will not be recorded in the books but will be disclosed in the notes to the accounts.

To explain:

The contingent liability with examples

Expert Solution & Answer

Want to see the full answer?

Check out a sample textbook solution

See solution

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 13RQ

To determine