M351 Notes-Day 3 Cur Liab

When the contingent loss is reasonably possible the

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When the contingent loss is reasonably possible , the company should disclose the contingency without recognition in the accounts. When the likelihood of the contingent loss is remote , neither recognition nor disclosure is required. 1
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3. Warranties produce contingent liabilities that are usually probable and measureable (estimable). Using the “expense warranty approach (accrual accounting),” estimated warranty liability and warranty expense are calculated and recorded in the period of the sale. When warranty claims are paid, the estimated warranty liability is reduced and the accounts associated with satisfying the claim (cash, inventory, etc.) are credited (reduced). For U.S. federal income taxes , warranties are not a deductible expense until warranty claims are paid. 4. Premiums or coupons are sometimes distributed with products or appear in newspapers or other materials (emails for example) distributed to individuals. The premiums and coupons may produce cash and or a product for the submitter of the premium or coupon. Some coupons allow retailers to reduce the amount a customer pays for certain products. See
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