Concept explainers
(Learning Objective 5: Interpret a company’s contingent liabilities) Martinson Cycles, Inc., a motorcycle manufacturer, included the following note in its annual report:
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
7 (In Part): Commitments and Contingencies
The Company self-insures its product liability losses in the United States up to $3.8 million (catastrophic coverage is maintained for individual claims in excess of $3.8 million up to $26.3 million). Outside the United States, the Company is insured for product liability up to $26.3 million per individual claim and in the aggregate.
1. Why are these contingent (versus real) liabilities?
2. In the United States, how can the
3. How can a contingency outside the United States become a real liability for the company? How does Martinson’s potential liability differ for claims outside the United States?
Want to see the full answer?
Check out a sample textbook solutionChapter 8 Solutions
Financial Accounting (12th Edition) (What's New in Accounting)
- HE Ltd is a company incorporated in SG and prepares its financial accounts based on the Singapore Financial Reporting Standards. It purchased a machine on 1/1/20X1 for $150,000. The machine has a useful economic life of 10 years and zero residual value. On 1/1/20X4, the company revalued the machine to its current fair value of $180,000. Assume that the current gross carrying amount of the machine as at 1st Jan 20X4 by reference to observable market data is $255,000. Illustrate with journal entries to show the revaluation of the machine by restating the gross carrying amount of the machine by reference to observable market data.arrow_forwardHalwings Group Ltd, a company operating in Kenya has the following information as at 1st December 2020; The company made a profit before tax of Ksh. 14,000,080 in the past 12 months of accounting -The company made a net book loss of Ksh.1,100,050 in the year 2019 -The company engaged in consultancy services in the year 2020 where they were paid Ksh. 5,000,000 -The company supplied vaatable goods worth Ksh. 3,500,000 and Ksh. 9,000,000 in the years 2019 and 2020 respectively -The company is seeking to invest Ksh. 7,000,000 in the coming year in a foreign country and in a different line from what they are dealing with in Kenya Required: (I) Calculate the different taxes due from the company as at the close of the year 2020 (ii) Advise the company concerning their planned investment in terms of the taxation concept of incvestment.arrow_forwardNgata Ltd. insured under a loss of profits policy of Sh.16,000,000. The company’s premises were partly destroyed by fire which took place on 1 May 2018 and the business resumed normal operations on 1 September 2018. Given below is the information extracted from the books of the company relating to the policy: Period of indemnity is six months. Net profit for preceding financial year – Sh.8,800,000. Insured standing charges – Sh.9,600,000. Uninsured standing charges – Sh.1,400,000 Increased cost of working – Sh.5,000,000. Savings in insured standing charges – Sh.800,000. Reduction in turnover avoided through increase in cost of working – Sh.10,000,000 Financial year ends on 31st December. The following are turnovers for four months ended 30 April, 31 August and 31 December respectively. Year Sh. Sh. Sh. Jan-April May- Aug Sept- Dec 2017 2018 22,000,000 24,000,000 50,000,000 25,000,000 48,000,000 31,000,000 10. Owing to reasons acceptable to…arrow_forward
- Required information [The following information applies to the questions displayed below.] Top Sound International designs and sells high-end stereo equipment for auto and home use. Engineers notified management in December 2018 of a circuit flaw in an amplifier that poses a potential fire hazard. Further investigation indicates that a product recall is probable, estimated to cost the company $2.7 million. The fiscal year ends on December 31. Required: 1. Should this contingent liability be reported, disclosed in a note only, or neither? Reported Disclosed in a note only Neitherarrow_forwardTop Sound International designs and sells high-end stereo equipment for auto and home use. Engineers notified management in December 2024 of a circuit flaw in an amplifier that poses a potential fire hazard. Further investigation indicates that a product recall is probable, estimated to cost the company $3.3 million. The fiscal year ends of December 31. Required: 1 Should this contingent liability be reported, disclosed in a note only, or neither? 2 What loss, if any, should Top Sount report in its 2024 income statement? 3 What liability, if any should Top Sount report in its 2024 income statement? 4 What entry, if any, should be recorded?arrow_forwardCan you please help me understand how to solve problems like this one by giving a detailed solution? Would appreciate your help so much. Thank you! PROBLEM: The following data were taken from the statement of affairs of ROBINSONS Corp.: Assets pledged for fully secured liabilities (current fairvalue, $75,000) $90,000 Assets pledged for partially secured liabilities (currentfair value $52,000) $74,000 Free assets (current fair value, $40,000) $70,000 Unsecured liabilities with priority $7,000 Fully secured liabilities $30,000 Partially secured liabilities $60,000 Unsecured liabilities without priority $112,000 *The amount that will be paid to creditors with priority is:a. 7,000 b. 6,000 c. 7,500 d. 6,200*The amount to be paid fully secured creditors is:a. 30,000 b. 32,000 c. 20,000 d. 35,000*The amount to be paid to partially secured creditors is:a. 52,700 b. 57,200 c. 56,200 d. 57,000*The amount to be paid to unsecured creditors:a. 78,200 b. 70,800 c. 72,000 d.…arrow_forward
- Please don't give image based answerarrow_forwardplease answer in 30 minutes. HE Ltd is a company incorporated in SG and prepares its financial accounts based on the Singapore Financial Reporting Standards. It purchased a machine on 1/1/20X1 for $150,000. The machine has a useful economic life of 10 years and zero residual value. On 1/1/20X4, the company revalued the machine to its current fair value of $180,000. Assume that the current gross carrying amount of the machine as at 1st Jan 20X4 by reference to observable market data is $255,000. Illustrate with journal entries to show the revaluation of the machine by restating the gross carrying amount of the machine by reference to observable market data.arrow_forwardJoni Shamrock Inc. has the following amounts reported in its general ledger at the end of the current year. Organization costs Trademarks Discount on bonds payable Deposits with advertising agency for ads to promote goodwill of company Excess of cost over fair value of net identifiable assets of acquired subsidiary Cost of equipment acquired for research and development projects; the equipment has an alternative future use Costs of developing a secret formula for a product that is expected to be marketed for at least 20 years $23,600 15,300 36,600 11,600 76,600 86,600 Total amount reported for intangible assets $ 82,200 (a) On the basis of the information above, compute the total amount to be reported by Shamrock for intangible assets on its balance sheet at year-end.arrow_forward
- 1)Based on the International Accounting Standards, solve the following exercises: IAS 16. Fixed Assets. We are a graphic arts company, and at the beginning of 2016, we acquired a new printer. The price of this printer was 25,000 euros. The additional expenses of the purchase were as follows: Installation and assembly: 3.000 euros. Transportation and delivery: 1.150 euros. All operations have a 21% VAT (not included), and the payment of the amounts is made by bank check. During January, the assembly and installation of the new printer takes place, which is in perfect working condition from February the 1st. The useful life expectancy of the printer is estimated at 10 years, and its amortisation will be carried out following the linear method. Additionally, at the end of its useful life, the company will have to face the costs of dismantling and rehabilitation of the place. Estimating said costs in 5,000 euros. Besides, said machinery requires specialised weekly maintenance, amounting to…arrow_forwardPlease read and answer questions carefully, Last question is asking for journal entry.arrow_forwardNote:- Do not provide handwritten solution. Maintain accuracy and quality in your answer. Take care of plagiarism. Answer completely. You will get up vote for sure.arrow_forward
- Survey of Accounting (Accounting I)AccountingISBN:9781305961883Author:Carl WarrenPublisher:Cengage LearningPrinciples of Accounting Volume 1AccountingISBN:9781947172685Author:OpenStaxPublisher:OpenStax College
- Cornerstones of Financial AccountingAccountingISBN:9781337690881Author:Jay Rich, Jeff JonesPublisher:Cengage Learning