Liabilities: Liabilities are the obligation of the business or amount payable by the business. Liabilities can current or long term. Current liabilities are liabilities payable within the short term or business cycle of the company, for example Accounts payable for purchases and utilities payable. Long term liabilities are liabilities payable in a long period/ years, for example long term loan. A contingent liability is a future liability that is dependent upon happening or not happening of an uncertain future event. For example: Amount to be paid if the case running in the court is lost. A contingent liability is recognized as a liability when it is probable and its reasonable amount can estimate. For example: Amount to be paid the company knows it has lost the case To choose: The correct option for recording the given contingent liability.

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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 8, Problem 13MCQ

To determine

Concept introduction:

Liabilities:

Liabilities are the obligation of the business or amount payable by the business. Liabilities can current or long term. Current liabilities are liabilities payable within the short term or business cycle of the company, for example Accounts payable for purchases and utilities payable. Long term liabilities are liabilities payable in a long period/ years, for example long term loan.

A contingent liability is a future liability that is dependent upon happening or not happening of an uncertain future event. For example: Amount to be paid if the case running in the court is lost.

A contingent liability is recognized as a liability when it is probable and its reasonable amount can estimate. For example: Amount to be paid the company knows it has lost the case

To choose:

The correct option for recording the given contingent liability.

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Kelly Inc. is involved in litigation regarding a faulty product sold in a prior year. The company has consulted with its attorney and determined that it is possible that they may lose the case. The attorneys estimated that there is a 40% chance of losing. If this is the case, their attorney estimated that the amount of any payment would be P 500,000. What is the required journal entry as a result of this litigation? *a. Debit Litigation Expense for P 500,000 and credit Litigation liability for P 500,000b. No journal entry is requiredc. Debit Litigation Expense for P 200,000 and credit Litigation Liability for P 200,000d. Debit Litigation Expense for P 300,000 and credit Litigation Liability for P 300,000

A lawsuit has been filed against North Shore Company. As year-end, the company’s attorney believes that there is an 60% likelihood that the company will be found liable. The attorney believes that the estimated range of the liability is between $150,000 and $300,000 and that all amounts within the range are equally likely. Unrelated to this lawsuit, the company has settled an insurance claim before year-end in the amount of $72000. The company will receive the money subsequent to year-end. What would be the amount, if any, that North Shore would record on the balance sheet related to the lawsuit under IFRS and US GAAP? What amount, if any, would North Shore record related to the insurance settlement under IFRS and US GAAP?

Tender Foot, Inc., is involved in litigation regarding a faulty product sold in a prior year. The company has consulted with its attorney and determined that it is possible that it may lose the case. The attorney estimated that there is a 50% chance of losing. The attorney estimated that the amount of any payment would be between P500,000 and P800,000 with P500,000 as the best estimate. How much should be recognized as a liability?

Answer 2

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 8, Problem 13MCQ

To determine

Concept introduction:

Liabilities:

Liabilities are the obligation of the business or amount payable by the business. Liabilities can current or long term. Current liabilities are liabilities payable within the short term or business cycle of the company, for example Accounts payable for purchases and utilities payable. Long term liabilities are liabilities payable in a long period/ years, for example long term loan.

A contingent liability is a future liability that is dependent upon happening or not happening of an uncertain future event. For example: Amount to be paid if the case running in the court is lost.

A contingent liability is recognized as a liability when it is probable and its reasonable amount can estimate. For example: Amount to be paid the company knows it has lost the case

To choose:

The correct option for recording the given contingent liability.

Expert Solution & Answer

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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 8, Problem 13MCQ

To determine

Concept introduction:

Liabilities:

Liabilities are the obligation of the business or amount payable by the business. Liabilities can current or long term. Current liabilities are liabilities payable within the short term or business cycle of the company, for example Accounts payable for purchases and utilities payable. Long term liabilities are liabilities payable in a long period/ years, for example long term loan.

A contingent liability is a future liability that is dependent upon happening or not happening of an uncertain future event. For example: Amount to be paid if the case running in the court is lost.

A contingent liability is recognized as a liability when it is probable and its reasonable amount can estimate. For example: Amount to be paid the company knows it has lost the case

To choose:

The correct option for recording the given contingent liability.

Expert Solution & Answer

Want to see the full answer?

Check out a sample textbook solution

See solution

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 8, Problem 13MCQ

To determine