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Unformatted text preview: ated...In the opinion of management, there was not at least a reasonable
possibility the Company may have incurred a material loss...management
considers the likelihood of a loss to be remote... From Apple’s 2011 10K Contingent Liabilities
• What if a company is able to estimate a range, but
not a specific dollar value?
(FASB) - If management judges one amount in the range of
potential losses to be more likely than other amounts we
record that amount. - If management judges no one amount within the range to
be more likely than other amounts, we record the
minimum amount and disclose information about the
range. Contingent Liabilities
• Warranty payable is a loss contingency that is usually
classified as a current liability.
• Warranty payable is an estimate of warranty services
that a company will have to provide on products sold
Why estimate the warranty liability this period?
Matching principle Contingent Liabilities
Hincapie Corporation sells $400 worth of merchandise to
customers on credit. Hincapie estimates that it will have to
provide warranty services equal to 1% of sales. Record the
sale (OK to leave off COGS entry) and warranty...
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This note was uploaded on 02/17/2014 for the course ACCTG 215 taught by Professor Wells during the Spring '08 term at University of Washington.
- Spring '08