pg-9 Making Decisions about Contingent Liabilities 109-4 For each of the followi
ID: 2518226 • Letter: P
Question
pg-9 Making Decisions about Contingent Liabilities 109-4 For each of the following stuations, select whether the company should (a) report a liability on the balance sheet, (o) disclose a contingent liability in the footnotes, or (c) not report the stustion. An automoble company introduces a new car. Past experience demonstrates that lawsuits will be filed as 1soon as the new model is involved in any accidents The company can be certain hat at least one jury wi award damages to people iejured in an accident, but it is unable to estimate the amount of any A research scientist determines that the company's best-seling product may infleinge on another company's 2 | patent.?the other oormpany discovers te infringement and files suit, which is uikely, your oom pany could As part of land development for a new housing project your company has polluted a natural lake Under 3 state law, you must clean up the lake once you complete development. The development project will take ive to eight years to complebe. Current estimates indicate that it will cost $3 million to clean up the lake. Your company has just been notfied that it is being sued by a customer. The probability of the customer winning is deemed to be probable, but the amount of any loss cannot be reliably esimated A key customer is unhappy with the quality of a major construction project. The company believes hat Pe customer is being unreasonable but, to maintain goodwill, has decided to do $260,000 in repairs next yoarExplanation / Answer
1. Since the amount of any payout cannot be estimated, the company should not report the situation.
2. Since it is unlikely that the other company will discover the infringement and file a suit and also the amount of loss cannot be determined with any certainity, the company should not report the situation.
3. Since it is certain that the company will have to clean up the lake and the amount of the clean up is also estimated, the company should report a liability.
4. Thuogh the loss is probable but the amount of loss cannot be estimated reliably, the company should not report the situation.
5. Since the company has already decided to do the repair, a liability should be reported.
Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.