Chapter 13, Problem 13.6P

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

Loss contingency:

Loss contingency is a contingency where existing situation or circumstances where potential losses are resolved and thus, future events are occurred.  Examples for loss contingency are as follows:

1. 1. Possible repair to a product under any warranty
2. 2. Defendant in a lawsuit
3. 3. Uncollectible receivables

To determine: The appropriate means of reporting each situation and prepare necessary journal entries and disclosure notes.

2.

To determine

To prepare: the necessary journal entries and disclosure note.