If a company estimates that it is "reasonably possible" that it will lose a significant amount in a lawsuit, then this contingent liability: a. should be reported as a liability on the balance sheet. b. should be disclosed in the footnotes to the financial statements. c. need not be disclosed. d. should be reported as a contra-liability on the balance. sheet. e. should be reported as a reduction of stockholders' equity on the balance sheet.
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- A company is required to report a liability on its balance sheet when it expects to lose a lawsuit and the amount of the expected loss can be reasonably estimated (FASB) Conversely, a company is prohibited from reporting a receivable in its balance sheet when it expected to win a lawsuit even though that is probable and the amount of the expected gain can be reasonably estimated. a. Explain why expected loss and gain are treated differently in accounting in the situation of a lawsuit. b. Give an example of a company that experienced an expected loss and gain due to a lawsuit. Provide the disclosure in their financial statements on gains and losses.A company is required to report a liability on its balance sheet when it expects to lose a lawsuit and the amount of the expected loss can be reasonably estimated (FASB) Conversely, a company is prohibited from reporting a receivable in its balance sheet when it expected to win a lawsuit even though that is probable and the amount of the expected gain can be reasonably estimated. Required: 1. Give an example of one company that experienced an expected loss due to a lawsuit and one company that had an expected gain. Provide the exact disclosure in their financial statements for both gains and losses.Management can estimate the amount of loss that will occur due to litigation against the company. If the likelihood of loss is reasonably possible, a contingent liability should be a. Disclosed but not reported as a liability. b. Disclosed and reported as a liability. c. Neither disclosed nor reported as a liability. d. Reported as a liability but not disclosed.
- Under what condition should a pending lawsuit be recognized as a liability on a company's balance sheet? Multiple Choice The outcome is probable and can be reasonably estimated. The amount can reasonably estimated. The outcome is probable. The outcome is reasonably possible.The following legal claims exist for a company. Identify the accounting treatment for each claim as either(a) a liability that is recorded or (b) an item described in notes to its financial statements. The company faces a probable loss on a pending lawsuit; the amount is not reasonably estimable.A company is required to report a liability on its balance sheet when it expects to lose a lawsuit and the amount of the expected loss can be reasonably estimated (FASB) Conversely, a company is prohibited from reporting a receivable in its balance sheet when it expected to win a lawsuit even though that is probable and the amount of the expected gain can be reasonably estimated. Does the expected loss meet the definition of a liability found in the conceptual framework? Explain Does the expected gain meet the definition of an asset found in the conceptual framework? Explain Why do you think accountants treat these seemingly similar situations differently? Explain
- Management can estimate the amount of loss that will occur due to litigation against the company. If the likelihood of loss is reasonably likely, a contingent liability should be: A) Disclosed but not reported B) Neither disclosed or reported as a liability C) Disclosed and reported as a liability D) Reported as a liability but not disclosedDirections: Please select the appropriate answer on the statement below;B - If the statement is trueS - When the statement is false or part of the statement is false Equity is the residual interest in the company's assets after deducting all liabilitiesA contingency that need not be disclosed in the financial statements or in the notes thereto is: A. pending litigation B. possibility of strike. C. deficiency tax assessment. D. note receivable discounted. Of the following items, the one which should be classified as a current liability is: A. an accommodation endorsement. B. a cash dividend declared before the balance sheet date when the date of record is subsequent to the balance sheet date. C. unfunded past service cost of a pension plan. D. dividends in arrears on cumulative preferred stock. Which of the following statements is true concerning contingent liabilities? A. Such liabilities should include obligations of known existence but of unknown amount B. If the definite amount is involved, it is not a contingent liability. C. Such liabilities are generally reported and totaled with other liabilities to make up the liability section of most balance sheets. D. Such liabilities should include obligations known in amount but…
- Which of the following statements relating to the accounting treatment of the identified item is CORRECT? O 1. Dividends become a legal liability of the company when they are declared and as such, they are recorded in the current liabilities section of the Balance Sheet and as an expense on the Income Statement O 2.A contingent liability should only be disclosed in the Notes to the Financial Statements because it meets the accounting definition of a liability O 3. Inventories are valued at the lower of cost and net realisable value on the Balance Sheet while in contrast, cash is valued at fair value O 4. The revenue realisation principle states that revenue can only be recognised when there has been an arms-length transaction2. Which is a valid statement regarding recognition of liabilities? * a. A non-interest bearing note is initially recognized at face value. b. A provision should not be O recognized for future operating losses. c. For accumulating compensated absences, an entity should recognize the expense and related liability during the period the absences are incurred by the employees. d. The estimated future costs of supplying awards for customer loyalty program shall be recognized as an expense in the period the award credits are availed of by customers.A certain contingent liability was evaluated at year-end, and considered to have a reasonable possibility of becoming an actual liability. If the accountant decided not to report it in the notes to the financial statement, what effect would this have on the financial reporting of the company? A The liabilities on the balance sheet would be understated B The information about the item would be inadequately disclosed in the notes C The net income of the company would be understated D There would be no effect