Financial Reporting, Financial Statement Analysis and Valuation
8th Edition
ISBN: 9781285190907
Author: James M. Wahlen, Stephen P. Baginski, Mark Bradshaw
Publisher: Cengage Learning
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Question
Chapter 6, Problem 14QE
To determine
Explain the two criteria along with examples is such a way that if the criteria is applied it would result in recording of loss contingency and accounting liability.
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Students have asked these similar questions
1. Define and briefly discuss a loss
contingency.
2. What are the similarities and differences of
the accounting treatment and financial
statement reporting of a loss contingency
between U.S. GAAP and IFRS?
3. As a manager, would you like to report a
debt as a current or non-current liability if you
had a choice? Explain. And under what kind of
circumstances could a short-term obligation
be reported as a non-current liability?
define contingent liability and give an example. How would you management of a company distort a liability if they wish to report less liability in the financial statement.
The risk of an accounting loss from a financial instrument due to possible failure of another party to perform according to terms of the contract is known as: [A] Credit risk [B] Investment risk [C]Market risk [D]Opportunity risk.
Chapter 6 Solutions
Financial Reporting, Financial Statement Analysis and Valuation
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Similar questions
- A company is required to report a liability on its balance sheet when it expects to lose a lawsuit and the amount of the expected loss can be reasonably estimated (FASB) Conversely, a company is prohibited from reporting a receivable in its balance sheet when it expected to win a lawsuit even though that is probable and the amount of the expected gain can be reasonably estimated. a. Explain why expected loss and gain are treated differently in accounting in the situation of a lawsuit. b. Give an example of a company that experienced an expected loss and gain due to a lawsuit. Provide the disclosure in their financial statements on gains and losses.arrow_forwardWhich is a valid statement regarding recognition of liabilities? a. A non-interest bearing note is initially recognized at face value. b. A provision should not be recognized for future operating losses. c. For accumulating compensated absences, an entity should recognize the expense and related liability during the period the absences are incurred by the employees. d. The estimated future costs of supplying awards for customer loyalty program shall be recognized as an expense in the period the award credits are availed of by customers.arrow_forwardWhat makes product warranties considered as contingent liabilities? Also, what Generally Accepted Accounting Principle supports how accountants record contingent liabilities?arrow_forward
- Management can estimate the amount of loss that will occur due to litigation against the company. If the likelihood of loss is reasonably possible, a contingent liability should be a. Disclosed but not reported as a liability. b. Disclosed and reported as a liability. c. Neither disclosed nor reported as a liability. d. Reported as a liability but not disclosed.arrow_forwardManagement can estimate the amount of loss that will occur due to litigation against the company. If the likelihood of loss is reasonably likely, a contingent liability should be: A) Disclosed but not reported B) Neither disclosed or reported as a liability C) Disclosed and reported as a liability D) Reported as a liability but not disclosedarrow_forwardWhich of the following sets of conditions would give rise to the accrual of a contingency under current generally accepted accounting principles? Group of answer choices Amount of loss is reasonably estimable and event occurs infrequently. Amount of loss is reasonably estimable and occurrence of event is probable. Event is unusual in nature and occurrence of event is probable. Event is unusual in nature and event occurs infrequently.arrow_forward
- Under GAAP, companies are permitted to recognize bad debt expense based on estimated bad-debt losses as of the time of sale, rather than when the accounts are actually written off. Identify one aspect of the conceptual framework of accounting that supports this treatment and one aspect that might not support it.arrow_forwardWhen an event impacts a financial statement element, it should be recognized in the accounting records even if reliability of the amount is questionable. True Falsearrow_forwardWhich of the following statements is false?Select one:a. A contingent liability should be disclosed in the notes to the financial statements if there is a reasonable possibility that a loss (or expense) will occur.b. A contingent liability should be accrued if the loss is probable and the amount of the loss can be reasonably estimated.c. A contingent liability is a potential obligation that depends on the future outcome of past events.d. All contingent liabilities should be reported as liabilities on the financial statements, even those that are unlikely to occur.arrow_forward
- A basic difference between loss contingencies and “real”liabilities is: a. Liabilities stem from past transactions; loss contingen-cies stem from future events. b. Liabilities always are recorded in the accountingrecords, whereas loss contingencies never are.c. The extent of uncertainty involved. d. Liabilities can be large in amount, whereas loss contin-gencies are immaterial.arrow_forwardWhich of the following statements is false?a. A contingent liability should be disclosed in the notes to the financial statements if thereis a reasonable possibility that a loss (or expense) will occur.b. All contingent liabilities should be reported as liabilities on the financial statements,even those that are unlikely to occur.c. A contingent liability is a potential obligation that depends on the future outcome of pastevents.d. A contingent liability should be accrued if the loss is probable and the amount of theloss can be reasonably estimated.arrow_forwardWhen the amount of a contingent liability cannot be reasonably estimated but its likelihood is probable, the company should: Multiple Choice include a description in the notes to the financial statements. record the amount of the liability times the probability of its occurrence. exclude the information about the contingent liability from its financial statements and footnotes. record the amount of the liability as a long-term liability on the balance sheet.arrow_forward
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