a contingent liability that is probable and the dollar amount can be estimated should be

Accrued liabilities are disclosed in the financial statements by appropriately classifying them as regular liabilities in the balance sheet. The acid-test ratio excludes inventory from the calculation. If it is not possible to arrive at a reasonable estimate of the loss associated with an event, only disclose the existence of the contingency in the notes accompanying the financial statements. Or, if it is not probable that a loss will be incurred, even if it is possible to estimate the amount of a loss, only disclose the circumstances of the contingency, without accruing a loss. Fictitious asset is not a real asset but deferred expenses that are shown in assets in the balance sheet. Expenses or losses that are not written off during the accounting period of occurrence because they give long-term benefit over a period of time are categorized as fictitious assets.

a contingent liability that is probable and the dollar amount can be estimated should be

A remote contingent liability is neither likely to occur nor reasonably possible. When these two conditions are met, companies are under no requirement to report or disclose it on their financial statements. U.S. GAAP considers the costs and benefits of its reporting requirements, weighing the cost of complying with a reporting requirement against the benefit of the information for the end user. Reporting remote liabilities would be a costly exercise in management’s imagination, providing information of very little use.

Accounts Payable Are Obligations To Suppliers Of Merchandise Or Of Services Purchased On:

83. The numerator of the acid-test ratio consists of a. Total current assets.

If the conditions for recording a loss contingency are initially not met, but then are met during a later accounting period, the loss should be accrued in the later period. Do not make a retroactive adjustment to an earlier period to record a loss contingency. When deciding upon the appropriate accounting for a contingency, the basic concept is that you should only record a loss that is probable, and for which the amount of the loss can be reasonably estimated. If the best estimate of the amount of the loss is within a range, accrue whichever amount appears to be a better estimate than the other estimates in the range. If there is no “better estimate” in the range, accrue a loss for the minimum amount in the range. They are recorded as assets in financial statements only to be written off later.

How would the store account for a purchase using the discount coupon? The reduction in sales price attributed to the coupon is recognized as premium expense.

People are more likely to leave a company and forfeit options when the stock price has declined and the options are worth little. But if the firm has done well and the stock price has increased significantly since grant date, the options will have become much more valuable, and employees will be much less likely to leave. If employee turnover and forfeiture are more likely when the options are least valuable, then little of the options’ total cost at grant date is reduced because of the probability of forfeiture. Suppose a clothing manufacturer were to build a fitness center for its employees. The company would not do so to compete with fitness clubs. It would build the center to generate higher revenues from increased productivity and creativity of healthier, happier employees and to reduce costs arising from employee turnover and illness.

At least 75%. Possible. 41. Which of the following is not considered a characteristic of a liability? Certified Public Accountant Present obligation. Arises from past events. Results in an outflow of resources.

What Are Contingent Liabilities Examples?

The terms of the new obligation incurred or to be incurred. The terms of any equity security issued or to be issued. The number of financing institutions that refused to refinance the debt, if any. A contingent asset is a possible asset that may arise because of a gain that is contingent on future events that are not under an entity’s control. According to the accounting standards, a business does not recognize a contingent asset even if the associated contingent gain is probable. A «medium probability» contingency is one that falls short of either but not both of the parameters of a high probability liability. These liabilities must be disclosed in the footnotes of the financial statements if either of two criteria are true.

  • «Debit Lawsuit Expense.» «Credit Estimated Lawsuit Liability.» Use the highlighted amount for both parts of the entry.
  • The amount of the loss involved can be reasonably estimated.
  • 31.
  • Which of the following statements is correct?
  • Which gives rise to the requirement to accrue a liability for the cost of compensated absences?
  • Accompanying the balance sheet is a list of creditors and shareholders.

CalCount pays a weekly payroll of $85,000 that includes federal taxes withheld of $12,700, FICA taxes withheld of $7,890, and pension withholdings of $9,000. What is the effect of assets and liabilities from this transaction? Assets decrease $85,000 and liabilities do not change. Assets decrease $64,410 and liabilities increase $20,590.

How Do I Know If My Balance Sheet Is Audited?

On April 10, 2015, Vopat remitted $81,480 tax to the state tax division for March 2015 retail sales. What was Vopat ‘s March 2015 retail sales subject to sales tax? $1,629,600.

a contingent liability that is probable and the dollar amount can be estimated should be

When lenders arrange loans with their corporate customers, limits are typically set on how low certain liquidity ratios can go before the bank can demand that the loan be repaid immediately. Sierra Sports worries that as a result of pending litigation and losses associated ledger account with the faulty soccer goals, the company might have to file for bankruptcy. After consulting with a financial advisor, the company is pretty certain it can continue operating in the long term without restructuring. The chances are remote that a bankruptcy would occur.

The obligation relates to the rights that vest or accumulate. Payment of the compensation is probable. The obligation is attributable to employee services already performed. All of these are conditions for the accrual.

When The Necessary Conditions Are Met, Compensated Future Absences Are Accrued In:

The efficient use of assets. The company’s liquidity. The company’s profitability. 76.

Face Amount * Annual Rate * Time To Maturity

Statement of financial position as a liability. Statement of financial position as an item of equity. a contingent liability that is probable and the dollar amount can be estimated should be 31. Present obligations arising from past events resulting in an outflow of resources.

The supporting documentation for legal expense transactions may reveal contingent liabilities. This allows companies time between the end of the fiscal year and the actual publication of the financial statements to make arrangements for repayment of the loan. Most often these loans are refinanced. GAAP recognizes three categories of contingent liabilities, namely probable, possible and remote. Probable contingent liabilities can be reasonably estimated and has to be reflected in the financial statements.

Reporting Requirements For Annual Financial Reports Of State Agencies And Universities

The company would record this warranty liability of $120 ($1,200 × 10%) to Warranty Liability and Warranty Expense accounts. This does not meet the likelihood requirement, and the possibility of actualization is minimal.


For our purposes, assume that Sierra Sports has a line of soccer goals that sell for $800, and the company anticipates selling 500 goals this year . Past experience for the goals that the company has sold is that 5% of them will need to be repaired under their three-year warranty program, and the cost of the average repair is $200. To simplify our example, we concentrate strictly on the journal entries for the warranty expense recognition and the application of the warranty repair pool. If the company sells 500 goals in 2019 and 5% need to be repaired, then 25 goals will be repaired at an average cost of $200.

Knowing the valuation perspective of your potential purchasing entities is contra asset account a big part of the exit plan. 79. How do you determine the acid-test ratio?