Chapter 13, Problem 13.18E

1

To determine

Contingent Liability

Contingent liability is one form of liability that arises based on a particular outcome of a specific event. They are possible obligation that might arise or might not arise based on the future events. It is otherwise called as probable liability or eventual liability.

Following are examples of contingencies:

• Income tax disputes
• Discounted notes receivable
• Lawsuits
• Debt guarantees
• Failure to follow government regulations

To report: Loss contingency

2

To determine

To report: Bad debt expense in income statement.

3

To determine

To prepare: Journal entry to record the contingency.

4.

To determine

Net Realizable Value