Horngren's Financial & Managerial Accounting Plus Mylab Accounting With Pearson Etext -- Access Card Package (5th Edition) (miller-nobles Et Al., The Horngren Accounting Series)

5th Edition

ISBN: 9780134077345

Author: Tracie L. Miller-Nobles, Brenda L. Mattison, Ella Mae Matsumura

Publisher: PEARSON

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Textbook Question

Chapter 11, Problem 11.2CTDC

Sell-Soft is the defendant in numerous lawsuits claiming unfair trade practices.

Sell-Soft has strong incentives not to disclose these contingent liabilities. However, GAAP requires that companies report their contingent liabilities.

Requirements

1. Why would a company prefer not to disclose its contingent liabilities?
2. Describe how a bank could be harmed if a company seeking a loan did not disclose its contingent liabilities.
3. What ethical tightrope must companies walk when they report contingent liabilities?

Definition Definition Costs that a business is responsible for paying, should a particular event potentially occur in the future. Also called a potential liability, a contingent liability is generally recorded only when the amount of liability can be reasonably estimated and the contingency is likely to occur shortly. The Generally Accepted Accounting Principles (GAAP) and International Financial Reporting Principles (IFRS) make it mandatory for the companies to record any contingent liability taking the principles of full disclosure, materiality, and prudence into consideration.

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Chapter 11, Problem 11.1CTDC

Chapter 11, Problem 11.1CTEI

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Sell-Soft is the defendant in numerous lawsuits claiming unfair trade practices. Sell- Soft has strong incentives not to disclose these contingent liabilities. However, GAAP requires that companies report their contingent liabilities. Requirements Why would a company prefer not to disclose its contingent liabilities? Describe how a bank could be harmed if a company seeking a loan did not disclose its contingent liabilities. What ethical tightrope must companies walk when they report contingent liabilities?

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Chapter 11 Solutions

Horngren's Financial & Managerial Accounting Plus Mylab Accounting With Pearson Etext -- Access Card Package (5th Edition) (miller-nobles Et Al., The Horngren Accounting Series)

Ch. 11 - Prob. 1QC Ch. 11 - On January 1, 2016, a business borrowed 18,000 on...Ch. 11 - A company sells 180,000 (selling price) of goods...Ch. 11 - Prob. 4QC Ch. 11 - Prob. 5QC Ch. 11 - Prob. 6QC Ch. 11 - Prob. 7QC Ch. 11 - Vega Company expects to pay a 4% bonus on net...Ch. 11 - Prob. 9QC Ch. 11 - Prob. 10QC

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Solution Summary: The author explains that Company S believes not to disclose its contingent liabilities in its financial statements for its vested interest, and the ethical tightrope in which companies must act when they report them.

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