Unformatted text preview: of loss is reasonably possible rather than probable, so no journal
entry is recorded. However, full disclosure of the loss contingency is made in a
footnote to the financial statements.
Environmental Printing has a gain contingency that is probable and can be
reasonably estimated within a range between $5.5 and $8 million. Gain
contingencies are not recorded until the gain is certain. Though firms do not record
gain contingencies in the accounts, they sometimes disclose them in notes to the
Environmental Printing should record a loss and a liability for the minimum
amount ($400,000) and disclose the range between $400,000 and $800,000 in the
footnotes to the financial statements. The entry is as follows: Accounting 215
Autumn 2013 Loss 400,000 Liability for Product Recall
(Record the loss contingency) Present Value of an Annuity
1. 4,000 * PV Annuity Factor for n=5, i=7%
4,000 * 4.10020 = 16,400.80
2. 9,000 * PV Annuity Factor for n=6, i=4%
9,000 * 5.24214 = 47,179.26
3. 3,000 * PV Annuity Factor for n=8, i=2%
3,000 * 7.32548 = 21,976.44 400,000...
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This document was uploaded on 02/09/2014.
- Spring '09