SAT Case 11-6-Power Point-2010

SAT Case 11-6-Power Point-2010 - should be disclosed in the...

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CASE 11-6 Contingencies Lori Wyse & Anshu Sinha
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Introduction: A possible future event that will have some impact on the entity. Disclosure required by APB Statement No. 4 Not defined by APB, no examples
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SFAS No. 5 “Accounting for Contingencies” Probable – The future event is likely to occur. Reasonably possible – The chance of occurrence is more than remote but less than likely. Remote – The chance of occurrence is slight.
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Conditions required: Information available prior to the issuance of the financials indicates that it is probable that a liability has been incurred at the date of the statements. The amount of the loss can be reasonably estimated.
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Examples: Pending lawsuits Income tax disputes Notes receivable discounted Accommodation endorsements Guarantee and warranty costs Premiums and coupons Environmental liabilities
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Safety Hazard The liability related to the safety hazard
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Unformatted text preview: should be disclosed in the financial statements It is probable The amount of the liability can be reasonably estimated Uninsured Flood Loss A liability should not be reported on the financial statements It is not probable that there will be a flood The amount of loss cannot be reasonably estimated Uninsured Flood Loss cont. There would be no disclosure in the footnotes General risk contingencies that are inherent to business operations are not reported These include war, strike, uninsured catastrophes, or a business recession Promotion Campaign There would be no contingent liability to report The expense has already been incurred and would be recorded as advertising expense The coupon is not for the entity for a toy so no future expense will be incurred...
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