Liabilities are obligations of the business which it need to pay in future. Liabilities can be categories into current or noncurrent liabilities. A business would like to minimize its liabilities to show a better credit position. Contingent liabilities are the future probable liabilities which are highly expected to become actual liabilities, for example; highly probable penalties on losing a legal matter. To choose: The way auditor will use to identify the contingent 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 17, Problem 17.13MCQ

To determine

Concept Introduction:

Liabilities are obligations of the business which it need to pay in future. Liabilities can be categories into current or noncurrent liabilities. A business would like to minimize its liabilities to show a better credit position.

Contingent liabilities are the future probable liabilities which are highly expected to become actual liabilities, for example; highly probable penalties on losing a legal matter.

To choose: The way auditor will use to identify the contingent liability.

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Eccles Inc., a zero-growth firm, has an expected EBIT of $100.000 and a corporate tax rate of 30%. Eccles uses $500,000 of 12.0% debt, and the cost of equity to an unlevered firm in the same risk class is 16.0%. If the effective personal tax rates on debt income and stock income are Td = 25% and TS = 20% respectively, what is the value of the firm according to the Miller model (Based on the same unlevered firm value in the earlier question)? a. $475,875 b. $536,921 c. $587,750 d. $623,050 e. $564,167

Refer to the data for Eccles Inc. earlier. If the effective personal tax rates on debt income and stock income are Td = 25% and TS = 20% respectively, what is the value of the firm according to the Miller model (Based on the same unlevered firm value in the earlier question)? a. $475,875 b. $536,921 c. $587,750 d. $623,050 O $564,167

Warren Supply Inc. wants to use debt and common equity for its capital budget of $800,000 in the coming year, but it will not issue any new common stock. It is forecasting an EPS of $3.00 on its 500,000 outstanding shares of stock and is committed to maintaining a $2.00 dividend per share. Given these constraints, what percentage of the capital budget must be financed with debt? a. 33.84% b. 37.50% c. 32.15% d. 30.54% e. 35.63%

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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 17, Problem 17.13MCQ

To determine

Concept Introduction:

Liabilities are obligations of the business which it need to pay in future. Liabilities can be categories into current or noncurrent liabilities. A business would like to minimize its liabilities to show a better credit position.

Contingent liabilities are the future probable liabilities which are highly expected to become actual liabilities, for example; highly probable penalties on losing a legal matter.

To choose: The way auditor will use to identify the contingent liability.

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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 17, Problem 17.13MCQ

To determine

Concept Introduction:

Liabilities are obligations of the business which it need to pay in future. Liabilities can be categories into current or noncurrent liabilities. A business would like to minimize its liabilities to show a better credit position.

Contingent liabilities are the future probable liabilities which are highly expected to become actual liabilities, for example; highly probable penalties on losing a legal matter.

To choose: The way auditor will use to identify the contingent liability.

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 17, Problem 17.13MCQ

To determine