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Survey of Accounting (Accounting I)

8th Edition
Carl Warren
ISBN: 9781305961883

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BuyFindarrow_forward

Survey of Accounting (Accounting I)

8th Edition
Carl Warren
ISBN: 9781305961883
Textbook Problem

Contingent liabilities
The following nole accompanied the financial .statements for Goodyear Tire and Rubber
Company (GT):

We are a defendant in numerous lawsuits alleging various asbestos-related personal injuries purported to result from alleged exposure to certain asbestos products manufactured by us or present in certain of our facilities. Typically, these lawsuits have been brought against multiple defendants in state and federal courts. Todate, we have disposed of approximately 109,500 claims by defending and obtaining the dismissal thereof or by entering into a settlement. The sum of our accrued asbestos-related liability,... including legal costs totaled approximately $458 million...
a.Illustrate the effects on the accounts and financial statements of recording the contingent liability of $458,000,000.
b. Why was the contingent liability recorded?

To determine

(a)

Concept introduction:

Contingent Liabilities

Those liabilities which depends on the occurrence of any event in the future due to happening of any event in past is known as contingent liabilities. These liabilities may occur or may not be. An example of contingent liability is the pending lawsuit against company which if goes against can damage the company very much.

The effect of the contingent liabilities of $458,000,000 on the accounts and financial statements.

Explanation

  (Amount in $)

    Balance Sheet
    Assets  =LiabilitiesStockholder's Equity
    ParticularsCash  =Common StockRetained Earnings
    Contingent liabilities claim payable  458,000<
To determine

(b)

Contingent Liabilities

Those liabilities which depends on the occurrence of any event in the future due to happening of any event in past is known as contingent liabilities. These liabilities may occur. An example of contingent liability is the pending lawsuit against company, which, if goes against, can damage the company very much.

The reason for recording contingent liabilities.

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