ACCT 320 Hinson 2-3 Current Liabilities and Contingencies

ACCT 320 Hinson 2-3 Current Liabilities and Contingencies -...

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ACCT 320 Assignment 2-3 Current Liabilities and Contingencies Jamie Hinson September 25, 2008 Ethics Case 13-15 1. According to our textbook, a loss contingency is an existing, uncertain situation involving potential loss depending on whether some future event occurs. Whether a contingency is accrued and reported as a liability depends on (a) the likelihood that the confirming event will occur and (b) what can be determined about the amount of loss. In my opinion, I do not think that 4% of sales is high for a warranty expense estimate. Due to the fact that this is a new company means that there may be recalls and defects for the product they are producing. I believe that a company in this standing (being new and not knowing exactly how the product will turn out), needs to be prepared for the worst and build a safety net. 2. By revising the warranty expense estimate to a lower percentage of sales, it would pose an
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Unformatted text preview: ethical dilemma. There will be some people who think that it is a good idea and others who do not. I believe in the saying “better safe than sorry”. In my opinion, there would be more people who would be more comfortable taking the safe route and having that safety net, rather than not. 3. Considering that Joel Craig was recently promoted for a senior accountant position and one of his job duties is to report on year-end adjustments, I believe that he will be the one in which people point their finger at, especially if he has estimated either too high or too low; even though his boss and the company president may have persuaded Joel to do so. This type of estimation is a tough call, especially for a new company that doesn’t have any previous experience and examples to go by....
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