Contingencies & commitments

Question 1

What is the criteria that needs to be meet for a contingent liability to be recorded on the Financial statements?

Answer 1

1. The contingent liability needs to be probable and reasonably estimable.

Question 2

What would be the accounting treatment for a loss contingency that is probable and the amount can be reasonably be estimated?

Answer 2

Record the contingency loss at the the lowest amount of giving range and disclose on the financial statements

Question 3

What is the journal entry to record a probable and estimable contingent liability?

Answer 3

1. Debit - Contingent liability expense (Lawsuit expense)
2. Credit - Contingent liability (Lawsuit liability)

Question 4

What would be the accounting treatment for a loss contingency that is probable but the amount cannot be reasonably be estimated

Answer 4

Disclose only the range of the amounts of the contingency and nature.

Question 5

When will a gain contingencies be recorded on the financial statements?

Answer 5

Gain contingencies will be recognized when they are realized.

Question 6

What would be the accounting treatment for Gain and Loss contingencies they are consider remote?

Answer 6

Ignore them. These are not disclose nor accrued on the financial statements.