Chapter 11, Problem 1QC

To determine

Known Liabilities:

The Known Liabilities are those liabilities which has not been recorded in the book yet. However, these are foreseeing to occur in the near future. In such situations, it is to be taken care of whether the amount of such liabilities can be determined accurately or not.

When the amount can be determined with accuracy, then such liabilities shall be recorded as actual liability.When such liabilities are expected to arisebut the estimated amount cannot be determined with accuracy, then such liability shall be shown as a note to the financial statement.

Requirement:

TheTreatment of Known liabilities which can be estimated in the books.

Answer to Problem 1QC

Solution: Theestimated amount of known liabilitiesare reported on the balance sheet.

b. reported in the Balance sheet.

Explanation of Solution

The liabilities which are going to arise in the near future and the amount of which is going to be determined with accuracy shall be reported in the liabilities of the balance sheet.

For example, the workman compensation claim pending for dispute in the court and it is apparent from the proceedings that the compensation of $200,000 have to be borne by the firm, then while preparing the financial statement, the claim for workmen compensation shall be reported in the liabilities side of the balance sheet.

Conclusion

To conclude, it must be said that known liabilities arising in the near future and estimated amount ascertained shall be reported in the balance sheet as liabilities.