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Cornerstones of Financial Accounti...

4th Edition
Jay Rich + 1 other
ISBN: 9781337690881

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BuyFindarrow_forward

Cornerstones of Financial Accounti...

4th Edition
Jay Rich + 1 other
ISBN: 9781337690881
Textbook Problem
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Contingent Liabilities

SLC Electronics is the plaintiff in a class action lawsuit. Their attorney has written a letter that it is now extremely likely that SLC will lose the lawsuit and be forced to pay $3,000,000 in damages.

Required:

Prepare the necessary journal entry. If no entry is required state "none." Any recognition will be to Other Expense and Lawsuit Payable.

To determine

Concept introduction:

Contingent Liability:

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 should be recorded in the financial statement if it is probable and its reasonable amount can estimated, otherwise it should be disclosed in the notes to the financial statement.

To indicate:

The recording of the contingent liability.

Explanation

A contingent liability is a future liability that is dependent upon happening or not happening of an uncertain future event. A contingent liability should be recorded in the financial statement if it is probable and its reasonable amount can estimated, otherwise it should be disclosed in the notes to the financial statement.

In the given case the attorney has specified that the lawsuit liability is most probable and the amount is estimated...

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