Discuss the various categories of contingent liabilities.

Question

Exercise 13-37 (LO. 7) On June 5, 2020, Brown, Inc., a calendar year taxpayer, receives cash of $750,000 from the county upon condemnation of its warehouse building (adjusted basis of $500,000 and fair market value of $750,000). Complete the statements below regarding what must Brown do to qualify for § 1033 postponement if the adjusted basis was instead $795,000. Because Brown has a realized loss on the condemnation of business property, it is automatically recognized . In this case, §1033 does not modify the normal rules of recognition. Therefore, Brown has a realized loss of $fill in the blank of which $fill in the blank is recognized. Feedback

Answer 1

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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.

Chapter 7, Problem 5E

a.

To determine

Discuss the various categories of contingent liabilities.

b.

To determine

Determine the correct accounting treatment for the given transactions and also prepare the necessary journal entry if required.

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Exercise 13-37 (LO. 7) On June 5, 2020, Brown, Inc., a calendar year taxpayer, receives cash of $750,000 from the county upon condemnation of its warehouse building (adjusted basis of $500,000 and fair market value of $750,000). Complete the statements below regarding what must Brown do to qualify for § 1033 postponement if the adjusted basis was instead $795,000. Because Brown has a realized loss on the condemnation of business property, it is automatically recognized . In this case, §1033 does not modify the normal rules of recognition. Therefore, Brown has a realized loss of $fill in the blank of which $fill in the blank is recognized. Feedback

Problem 13-6 (Algo) Various contingencies [LO13-5, 13-6] Eastern Manufacturing is involved with several situations that possibly involve contingencies. Each is described below. Eastern's fiscal year ends December 31, and the 2021 financial statements are issued on March 15, 2022. a. Eastern is involved in a lawsuit resulting from a dispute with a supplier On February 3, 2022, judgment was rendered against Eastern in the amount of $111 million plus interest, a total of $126 million. Eastern plans to appeal the judgment and is unable to predict its outcome though it is not expected to have a material adverse effect on the company. b. In November 2020, the State of Nevada filed suit against Eastern, seeking civil penalties and injunctive relief for violations of environmental laws regulating hazardous waste. On January 12, 2022, Eastern reached a settlement with state authorities. Based upon discussions with legal counsel, the Company feels it is probable that $144 million will be…

Problem 9-10: Several independent items are listed for which the outcome of events is unknown at the year-end. Accompany offers a two-year warranty on sales of new computers. It believes that 4% of the computers will require repairs. A company is involved in a trademark infringement suit. The company’s legal experts believe that an award of $500,000 in the company’s favor will be made. A company is involved in an environmental cleanup lawsuit. The company’s legal counsel believes that the outcome may be unfavorable but has not been able to estimate the costs of the possible loss. A soup manufacturer has included a coupon offer in the Sunday newspaper supplements. The manufacturer estimates that 25% of the 50c coupons will be redeemed. A company has been sued by the federal government for price-fixing. The company’s legal counsel believes that there will be an unfavorable verdict and has made an estimate of the probable loss. Identify which of the items (a) through (e) should be…

Answer 2

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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.

Chapter 7, Problem 5E

a.

To determine

Discuss the various categories of contingent liabilities.

b.

To determine

Determine the correct accounting treatment for the given transactions and also prepare the necessary journal entry if required.

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Answer 3

Question

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.

Chapter 7, Problem 5E

a.

To determine

Discuss the various categories of contingent liabilities.

b.

To determine

Determine the correct accounting treatment for the given transactions and also prepare the necessary journal entry if required.

Expert Solution & Answer

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See solution

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Answer 4

Question

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.

Chapter 7, Problem 5E

a.

To determine