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Chapter 11: 13RQ (page 604)

What is contingent liability? Provide some examples of contingencies.

Short Answer

Expert verified

Contingent liabilities are potential but not actual and depend upon some future event.

Step by step solution

01

Contingent Liability

A contingent liability is an obligation that is based on a future event. This is a potential liability and not an actual liability. It is called contingent because it cannot be confirmed in present but can only be made sure after the happening of any future event.

02

Examples of contingencies

Some examples of the contingencies are as follow:

a) Claim over patent infringement

b) Any kind of lawsuit against the company

c) Warranty expense

d) Co-signing a notes payable

e) Giving a guarantee for third parties etc.

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Most popular questions from this chapter

On August 10, Swanson Company recorded sales of merchandise inventory on account, \(4,000. The sales were subject to sales tax of 4%. The company uses the perpetual inventory system. On September 30, Swanson paid \)500 of sales tax to the state.

1. Journalize the transaction to record the sale on August 10. Ignore cost of goods sold.

:On December 31, 2017, Franklin purchased $13,000 of merchandise inventory on a one-year, 9% note payable. Franklin uses a perpetual inventory system. Requirements

1. Journalize the company’s purchase of merchandise inventory on December 31, 2017.

2. Journalize the company’s accrual of interest expense on June 30, 2018, its fiscal year-end.

3. Journalize the company’s payment of the note plus interest on December 31, 2018

Rios Raft Company had the following liabilities.

a. Accounts Payable

b. Note Payable due in 3 years

c. Salaries Payable

d. Note Payable due in 6 months

e. Sales Tax Payable

f. Unearned Revenue due in 8 months

g. Income Tax Payable

Determine whether each liability would be considered a current liability (CL) or a long-term liability (LTL).

How do unearned revenues arise?

Recording employer payroll taxes and employee benefits Ricardo’s Mexican Restaurant incurred salaries expense of \(62,000 for 2018. The payroll expense includes employer FICA tax, in addition to state unemployment tax and federal unemployment tax. Of the total salaries, \)22,000 is subject to unemployment tax. Also, the company provides the following benefits for employees: health insurance (cost to the company, \(3,000), life insurance (cost to the company, \)330), and retirement benefits (cost to the company, 10% of salaries expense).

Requirements

  1. Journalize Ricardo’s expenses for employee benefits and for payroll taxes. Explanations are not required.
  2. What was Ricardo’s total expense for 2018 related to payroll?
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