Contingencies, Comittments, and Guarantees Flashcards
If a contingency is probable and can be estimated - proper treatment is to disclose the contingency only. TF
False, accrue the liability
If a contingent liability is remote,, no disclosures are needed. TF
True
If a contingent liability is probable or possible - proper treatment is to accrue the liability. TF
False, just disclose it.
Warranties, lawsuits, coupons, and rebates/premiums are common contingent liabilities. TF
True
When accruing a cont liab a range of values is determined. If one value is more likely than others, that value is accrued. If no one value is more likely than the others, the HIGHEST amount in the range is to be accrued. TF
False, the LOWEST. This seems counter-intuitive to the principle of conservatism but actually isn’t. It prevents companies from recognizing gains due to the overestimation of contingent liabilities.
Gain contingencies are recognized and included in income. TF
False, footnoted, until actually received.
Changes in con liabs are considered changes in accounting principle and granted retroactive treatment. TF
False, estimates, prospective
Warranty expense (dr.) and warranty liability (cr.) is recognized when the sale is made or the service is performed. TF
True
When warranty services are performed a (dr). to cash, parts, etc. and a (cr.) to warranty liability will follow. TF
False, warranty liability is debited and cash, parts, etc. is credited. matching principle
Gain contingencies are reported in the notes but never accrued. TF
True
Remote guarantees should still be disclosed in the notes. TF
True
In IFRS contingent liabilities are called what?
Provisions
The threshold for accrual treatment of con liabs under GAAP and IFRS are both “probable and estimable”. TF
False, under IFRS the threshold is “more likely than not and estimable”.
Under IFRS the middle amount in the range is the amount accrued. TF
True
Under IFRS gain contingencies are realized when recognized. TF
False, recognized when “virtually certain”
