Week 4 DQs - Week 4 DQ1 What is a contingency Why are...

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Week 4, DQ1 What is a contingency? Why are contingencies important to users of financial statements? What are the criteria for recording contingencies? Should companies record a liability for threatened litigation? Explain why or why not. A contingency is “An existing condition, situation, or set of circumstances involving uncertainty as to possible gain (gain contingency) or loss (loss contingency) to an enterprise that will ultimately be resolved when one or more future events occur or fail to occur.” (Accounting for Contingencies, Statement of Financial Accounting Standards No. 5, Stamford, Conn.: FASB, 1975, par. 1). There are two types of contingencies: Contingent Liabilities and Contingent Assets. A contingent liability indicates that there is an existence of an obligation, where the amount due and/or the settlement date is uncertain. Unlike normal liabilities, contingent liabilities are dependent upon a future even. An example of a contingent liability is a product warranty. If a
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