For each of the following, determine the correct way to treat the situation: i.e
ID: 2578186 • Letter: F
Question
For each of the following, determine the correct way to treat the situation: i.e. record in the books, disclosure required or no reporting needed and any amount that is to be reported or disclosed.
A, The likelihood of a payment occurring is probable, and the estimatd amount is $1.3 million
B, The likelihood of a payment occurring is probable, and the amount is estimated to be in the range of $1.1 million to $1.6 million.
C, The likelihood of a payment occurring is reasonably possible, and the estimated amount is $1.3 million.
D, The likelihood of a payment occurring is remote, while the estimated potential amount is $1.3 million.
Explanation / Answer
A, The likelihood of a payment occurring is probable, and the estimatd amount is $1.3 million
Journal entry:
Dr. Loss $1,300,000
Cr. Contingent liability $1,300,000
B, The likelihood of a payment occurring is probable, and the amount is estimated to be in the range of $1.1 million to $1.6 million.
Journal entry:
Dr. Loss $1,100,000
Cr. Contingent liability $1,100,000
C, The likelihood of a payment occurring is reasonably possible, and the estimated amount is $1.3 million.
No Journal entry
Reason: When the likelihood of loss is reasonably possible instead of probable, we record no entry however make full disclosure in a note to the financial statements for a description on the contingency
D, The likelihood of a payment occurring is remote, while the estimated potential amount is $1.3 million.
No Journal entry:
Reason: If the likelihood of loss is remote then the disclosure is generally not required
Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.