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 determine: Accounting treatment to record the contingent gain.

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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 13, Problem 13.28Q

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 determine: Accounting treatment to record the contingent gain.

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A customer has filed a lawsuit against your company. Your attorneys have reviewed the facts of the case. They believe that it is reasonably possible (but not probable or certain) that the judge will award the plaintiff (your customer) up to $100,000. Which of the following is the proper accounting treatment for your company? Disclose the basic facts about the lawsuit in a financial statement footnote but do not record a liability. Record a liability by debiting a liability account and crediting retained earnings. Record a liability by debited a loss account and crediting a liability account. Record a liability by debiting retained earnings and crediting a liability account. Record a liability by debiting a liability account and crediting a loss account. Neither disclose the basic facts about the lawsuit nor record a liability

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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 13, Problem 13.28Q

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 determine: Accounting treatment to record the contingent gain.

Expert Solution & Answer

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Check out a sample textbook solution

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Answer 3

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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 13, Problem 13.28Q

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 determine: Accounting treatment to record the contingent gain.

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 13, Problem 13.28Q

To determine