Log out Go to App
Go to App

Learning Materials

Features

Discover

Chapter 13: Question 17Q (page 691)

Define (a) a contingency and (b) a contingent liability.

Short Answer

Expert verified

Contingency is a situation uncertain, whereas contingent liabilityis an uncertain liability on the occurrence of a contingent event. Contingency is general, and part of contingent liability since the occurrence of liability depends upon its uncertain situation in the future.

Step by step solution

01

(a) A Contingency

It is a future situation that is possible, but not sure about the happening of an event. It may or may not be certain. Its profit or loss is determined based on the happening or nonhappening of a certain event.

  • Accounted loss: In the case of contingency loss, it is accounted for by determining the expected outcome of contingency. As a matter of prudence, it is provided for such loss in financial statements
  • Provisions for contingency loss are not made since they do not relate to conditions existing on the balance sheet date.
  • Accounted Gain: In case of contingency gain, it is not recognized in the financial statement since its recognition may mean recognition of revenue that may never be realized
  • Example: sometimes buying a new house has to be contingent upon someone else buying your old house first.
02

(b) A Contingent Liability

It is a liability that may occur depending on the outcome of a future uncertain event. Its liability is estimated based on its happening or the amount involved.

  • Accounted: These are never accounted for in financial statements. These have not occurred yet, but there is the possibility of them occurring in the future, so they have no accounting treatment
  • Examples: Potential Lawsuits, product warranties, pending investigation, etc.

Unlock Step-by-Step Solutions & Ace Your Exams!

  • Full Textbook Solutions

    Get detailed explanations and key concepts

  • Unlimited Al creation

    Al flashcards, explanations, exams and more...

  • Ads-free access

    To over 500 millions flashcards

  • Money-back guarantee

    We refund you if you fail your exam.

Start your free trial

Over 30 million students worldwide already upgrade their learning with Vaia!

One App. One Place for Learning.

All the tools & learning materials you need for study success - in one app.

Get started for free

Most popular questions from this chapter

EXCEL (Equity Securities Entries and Disclosures) Parnevik Company has the following securities in its

investment portfolio on December 31, 2017 (all securities were purchased in 2017): (1) 3,000 shares of Anderson Co. common

stock which cost \(58,500, (2) 10,000 shares of Munter Ltd. common stock which cost \)580,000, and (3) 6,000 shares of King Company

preferred stock which cost \(255,000. The Fair Value Adjustment account shows a credit of \)10,100 at the end of 2017.

In 2018, Parnevik completed the following securities transactions.

1. On January 15, sold 3,000 shares of Anderson’s common stock at \(22 per share less fees of \)2,150.

2. On April 17, purchased 1,000 shares of Castle’s common stock at \(33.50 per share plus fees of \)1,980.

On December 31, 2018, the market prices per share of these securities were Munter \(61, King \)40, and Castle $29. In addition, the

accounting supervisor of Parnevik told you that, even though all these securities have readily determinable fair values, Parnevik

will not actively trade these securities because the top management intends to hold them for more than one year.

Instructions

(a) Prepare the entry for the security sale on January 15, 2018.

(b) Prepare the journal entry to record the security purchase on April 17, 2018.

(c) Compute the unrealized gains or losses and prepare the adjusting entry for Parnevik on December 31, 2018.

(d) How should the unrealized gains or losses be reported on Parnevik’s income statement and balance sheet?

Under what conditions should a provision be recorded?

Under what conditions should a short-term obligation be excluded from current liabilities?

Use the information from IFRS17-10 but assume the shares were purchased to meet a non-trading regulatory requirements. Prepare Fairbanks' journal entries to record (a) the purchase of the investment, (b) the dividends received, and (c) the fair value adjustment.

Under what conditions is an employer required to accrue a lability for sick pay? Under what conditions is an employer permitted but not required to accrue a liability for sick pay?
See all solutions

Recommended explanations on Business Studies Textbooks

Change Management

Read Explanation

Strategic Analysis

Read Explanation

Organizational Behavior

Read Explanation

Intermediate Accounting

Read Explanation

Managers

Read Explanation

Financial Performance

Read Explanation
View all explanations

What do you think about this solution?

We value your feedback to improve our textbook solutions.

Study anywhere. Anytime. Across all devices.

Sign-up for free