Question

17. Which of the following would appear on the statement of financial position as a current liability? a. a probable loss in the amount of $4 million from an ongoing lawsuit b. a possible loss in the amount of $4 million from an ongoing lawsuit c. a probable loss from an ongoing lawsuit, the amount of which is not yet determinable d. a lawsuit for $4 million for which the likelihood of loss is remote

18. Chastain Park Entertainment paid salaries expense of $350,000 during Year 1. However, additional salaries of $20,000 had been earned by employees, but not paid or recorded at December 31, Year 1.

Refer to Chastain Park Entertainment. Under the accrual basis of accounting, what is the total amount of salaries payable to be reported at December 31, Year 1? a. $0 b. $20,000 c. $350,000 d. $370,000

Answer 1

17)	As per GAAP the probable loss due to past events should be recorded as current liabilites
	provided that it should be determinable.
	Hence the correct option is
	a) a probable loss in the amount of $4 million from an ongoing lawsuit
	Why other options are wrong ?
	Option b.) it should be probable not a possible, possibility brings contingencies.
	option c) it should be determinable.
	option d) it should not be remote.
18)	As per accrual basis of accounting system the expenses should be recorded
	when it incurred . In the given case additional salaries of $ 20000
	had been earned by employees but it is not paid hence it should be shown in salaries payable
	in the balance sheet.
	Correct Option :b.$20000
	Please upvote.