Since the amount of the loss has been reasonably estimated and it is probable that the loss will occur, the company can record the $10 million as a contingent loss. If the zoning commission had not indicated the company’s liability, it may have been more appropriate to only mention the loss in the disclosures accompanying the financial statements.
What must be matched to the period in which the incident occurred?
An expense must be matched to the period in which the incident occurred. The possible liability should not be shown in the financial statements. Which of the following is the proper treatment for a contingency that is probable but the exact amount of which is not known? The amount can be estimated.
What is a contingent liability?
It is a potential liability that depends on a future event. It is a liability resulting from a lawsuit settled in court. How a company records or doesn't record a contingent liability is based on one of which three likelihoods that an event will take place in the future?
How a company records or doesn't record a contingent liability?
How a company records or doesn't record a contingent liability is based on one of which three likelihoods that an event will take place in the future? remote, reasonably possible, and probable
What are examples of contingencies in accounting?
Examples of contingent loss situations are: Injuries that may be caused by a company's products, such as when it is discovered that lead-based paint has been used on toys sold by the business.
What is contingency in accounting?
Contingencies are potential liabilities that might result because of a past event. The likelihood of loss or the actual amount of the loss is still uncertain. Loss contingencies are recognized when their likelihood is probable and this loss is subject to a reasonable estimation.
Which is the proper treatment of contingent asset?
Which is the proper treatment of contingent asset? a. It is probable that an outflow of resources embodying economic benefits will be required to settle the obligation.
What is the treatment of contingent liabilities in the financial statements?
Contingent liabilities, although not yet realized, are recorded as journal entries. Contingent liabilities require a credit to the accrued liability account and a debit to an expense account. Once the obligation is realized, the balance sheet's liability account is debited and the cash account is credited.