Question
In: Accounting
Analyzing Contingent and Other Liabilities The following independent situations represent various types of liabilities. Analyze each...
Analyzing Contingent and Other
Liabilities
The following independent situations represent various types of
liabilities. Analyze each situation and indicate which of the
following is the proper accounting treatment for the company: (a)
record a liability on the balance sheet, (b) disclose the liability
in a financial statement footnote, or (c) neither record nor
disclose any liability.
- A stockholder has filed a lawsuit against Windsor Corporation. Windsor's attorneys have reviewed the facts of the case. Their review revealed that similar lawsuits have never resulted in a cash award and it is highly unlikely that this lawsuit will either.
- Sterling Company signed a 60-day, 10% note when it purchased items from another company.
- The Environmental Protection Agency notifies Stark Industries that a state where it has a plant is filing a lawsuit for groundwater pollution against Stark and another company that has a plant adjacent to Stark’s plant. Test results have not identified the exact source of the pollution. Stark’s manufacturing process often produces by-products that can pollute groundwater.
- Franklin Company manufactured and sold products to a retailer that later sold the products to consumers. Franklin Company will replace the product if it is found to be defective within 90 days of the sale to the consumer. Historically, 1.2% of the products are returned for replacement.
-
Neither record nor disclose the liability.
Record the liability on the balance sheet.
Disclose the liability in a financial statement footnote.
-
Record the liability on the balance sheet.
Neither record nor disclose the liability.
Disclose the liability in a financial statement footnote.
-
Disclose the liability in a financial statement footnote.
Record the liability on the balance sheet.
Neither record nor disclose the liability.
-
Record the liability on the balance sheet.
Disclose the liability in a financial statement footnote.
Neither record nor disclose the liability.
Solutions
ekkarill92 answered 2 years agoRelated Solutions
Analyzing Contingent and Other Liabilities The following independent situations represent various types of liabilities. Analyze each...
Analyzing Contingent and Other Liabilities
The following independent situations represent various types of
liabilities. Analyze each situation and indicate which of the
following is the proper accounting treatment for the company:
(a) record a liability on the balance sheet, (b) disclose
the liability in a financial statement footnote, (c) neither record
nor disclose any liabilities.
1) A stockholder has filed a lawsuit against Windsor
Corporation. Clinch's attorneys have reviewed the facts of the
case. Their review revealed that similar lawsuits...
Analyzing Contingencies and Assessing Liabilities The following independent situations represent various types of liabilities. Analyze each...
Analyzing Contingencies and Assessing
Liabilities
The following independent situations represent various types of
liabilities. Analyze each situation and indicate which of the
following is the proper accounting treatment for each company: (1)
record in accounts, (2) disclose in a financial statement footnote,
or (3) neither record nor disclose.
a. A stockholder has filed a lawsuit against Clinch Corporation.
Clinch’s attorneys have reviewed the facts of the case. Their
review revealed that similar lawsuits have never resulted in a cash
award...
The following situations are independent of each other and related to the activities and events of...
The following situations are independent of each other and
related to the activities and events of Global Berhad in the year
2018. The financial year end for the company is 31 December. (i) In
the past, the company expensed borrowing costs on construction of
its factory. The company has changed its policy this year and now
capitalises as it is incurred. In 2017 accounts, borrowing costs
expensed was RM2,500,000 and this year’s borrowing costs incurred
was RM3,800,000. The factory is...
The following three independent sets of facts relate to contingent liabilities: 1. In November of the...
The following three independent sets of facts relate to
contingent liabilities:
1. In November of the current year, an automobile manufacturing
company recalled all pickup trucks manufactured during the past two
years. A flaw in the battery cable was discovered and the recall
provides for replacement of the defective cables. The estimated
cost of this recall is $3.5 million.
2. The EPA has notified a company of violations of environmental
laws relating to hazardous waste. These actions seek cleanup costs,...
Analyze the following independent situations. Required: For each situation, state the likelihood of a future event...
Analyze the following independent situations. Required: For each
situation, state the likelihood of a future event and state how the
contingency will be reported.
Company A estimates it will have to pay $85,000 in warranty
repairs next year.
Company B is being sued by a customer. Company B's attorneys
feel that this is a frivolous lawsuit and there is very little
chance that the customer will win.
Company C co- signed a note payable for Company D. Company D is...
The following are independent situations. Analyze each situation and provide your assessment of the potential resolution...
The following are independent situations. Analyze each
situation and provide your assessment of the potential resolution
of each scenario, including potential liability for the
auditor.
The audit firm, Smith and Jones, LLP, received a subpoena
for its documentation related to the audit of Sanders Corporation’s
financial statements. The firm has refused to respond, alleging
that the documentation is considered privileged communication
between the firm and its client.
John Doe, CPA is a defendant in a lawsuit alleging that
Doe should...
Contingent liabilities are a little quirky as far as accounting goes, as they represent something that...
Contingent liabilities are a little quirky as far as accounting
goes, as they represent something that may or may not be a
liability. Brainstorm and describe your own example of a contingent
liability. Post your scenario and state how you would handle the
accounting (record/disclose/do not disclose).
1. Define contingent liabilities and describe the types of events that might create a contingent liability....
1. Define contingent liabilities and describe the types of
events that might create a contingent liability. Describe places
auditors might look for contingent liabilities.
2. Explain how auditors treat events that occur after the end of
the fiscal year being audited but before the audit opinion has been
issued. Describe steps auditors use to identify those events.
Define contingent liabilities and describe the types of events that might create a contingent liability. Describe...
Define contingent liabilities and describe the types of events
that might create a contingent liability. Describe places auditors
might look for contingent liabilities.
Each of the following are independent situations. For each of the situations, use the 5-step process...
Each of the following are independent situations. For each of
the situations, use the 5-step process to determine when revenue
can be recognized by indicating for each of the situations:
1. If a contract exists
2. The performance obligations in the contract
3. The transaction price in the contract
4. How the transaction price is allocated to the performance
obligations.
5. When revenue is recognized
Situation A:
Freddy Flyer books travel on an airline on June 2, 2027. He pays...
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