Chapter 12

Question 1

What is a contingency

Answer 1

an event involving unceratinty

Question 2

What two things must happen for a loss continceny to be accrued

Answer 2

Must be probable and estimable

Question 3

How do you report a remote likelihood

Answer 3

You don’t- no disclosure required

Question 4

How do you report a reasonably possible outcome

Answer 4

disclosure not

Question 5

How do you report a probable outcome

Answer 5

Liability however if its not estimable then you just disclose a note

Question 6

What are loss contingencies that are usually accrued

Answer 6

• Warranties
• Premiums offered

Question 7

What are Loss contingencies that may be accrued

Answer 7

• Threat of expropriation of assets
• Pending or threatened litigation
  -Actual or possible claims and assesments
• Guarantees of indebtness
  -Agreements to repurchase receivables

Question 8

What is an Assurance Type warranty

Answer 8

A warranty that comes with the product

Question 9

What is a service warranty

Answer 9

A warranty that is extended not included in product purchase

Question 10

How would you record the purchase of service warranty

Answer 10

Cash
Unearned Rev

Question 11

Typical Gain contingencies are:

Answer 11

1.) Possible Receipts of monies from gifts, donations asset sales
2.) possible refunds
3.) pending court cases with a favorable outcome
4.) tax loss carryforwards

Question 12

How are gain contingencies reported

Answer 12

they are not because we take a conservative approach