Chapter 17 - Solution Manual

Unknown deleted 368 b no again to do so would not be

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368 b. No. Again, to do so would not be neutral. The financial statements would not be free from bias and could be misleading to investors, creditors, and other users. See a. above for a discussion of neutrality FASB ASC 17-1 Disclosure of Loss Contingency and Subsequent Event The topic of loss contingencies is addressed in FASB ASC 450-20 and. It is accessed by searching ‘contingencies.” Part a. The following discussion indicates that the potential loss should be disclosed; however, since no amount is given, the amount of the loss cannot be accrued. The answer to Part b is contained at the end of this question. 05-1 This Subtopic provides guidance for the recognition and disclosure of a loss contingency. 05-2 This Subtopic, in combination with Subtopics 450-10 and 450-30, provides general guidance regarding gain and loss contingencies. Other Topics include gain or loss contingencies related to those specific Topics. Therefore, the Contingencies Topic does not include all standards related to contingencies. While not intended to be all-inclusive, the following Relationships Sections within the Contingency Subtopics provide links to many Topic-specific contingencies: a. See Section 450-10-60 for references to other standards related to uncertainties that could result in either a gain or a loss. b. See Section 450-20-60 for references to other standards related to uncertainties that could result in a future loss. c. See Section 450-30-60 for references to other standards related to uncertainties that could result in a future gain. 05-3 The following are examples of loss contingencies for which links are provided in Section 450-20-60: a. Collectibility of receivables b. Obligations related to product warranties and product defects c. Risk of loss from catastrophes assumed by property and casualty insurance entities including reinsurance entities d. Guarantees of indebtedness of others e. Obligations of commercial banks under standby letters of credit f. Agreements to repurchase receivables (or to repurchase the related property) that have been sold. > Dealing with Uncertainty when Accounting for Losses 05-4 Accounting standards use two primary approaches to dealing with uncertainty in loss circumstances: a. Recognition using a probability threshold b. Measurement using a fair value objective. 05-5 This Subtopic deals with uncertainty by requiring a probability threshold for recognition of a loss contingency and that the amount of the loss be reasonably estimable. As noted in paragraph 450-20-30-1, when both of those recognition criteria are met, and the reasonably estimable loss is a range, it requires accrual of the amount that appears to be a better estimate than any other estimate within the range, or accrual of the minimum amount in the range if no amount within the range is a better estimate than any other amount.
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369 05-6 In contrast, fair value is not an estimate of the ultimate settlement amount or the present value of an estimate of the ultimate settlement amount. Uncertainty in the amount and timing of
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