F4 M2 - Contingencies and Commitments

Question 1

Contingency

Answer 1

an existing condition involving uncertainty as to possible gain or loss

Question 2

Recognition and Measurement of Gain Contingencies

Answer 2

Not in the financial statements, disclosed
Not recognized until realized

Question 3

Recognition and Measurement of Loss Contingencies

Answer 3

It depends on the likelihood that future events will confirm the loss

Question 4

Likelihood of Contingency Losses

Answer 4

Probable, Reasonably Probrable, Remote

Question 5

Equation

Total Estimated Coupon Redemtions

Answer 5

Total number of coupons issued x Estimated redemption rate

Question 6

Warrenties

Answer 6

Seller’s promise to correct

Question 7

Premiums

Answer 7

Offers to customers for the purpose of stimulating sales

Question 8

Contingency with Probable and Range

Answer 8

The lower range is accrued, and the full range is disclosed

Question 9

Contingency with Reasonably Possible

Answer 9

No accrual and the full range is disclosed.

Question 10

Equation

Amount to Recognize as a Liability

Answer 10

Purchase price - new market price

Question 11

Coupons are Recorded as

Answer 11

Unearned Revenue

Question 12

Contingency that are Remote

Answer 12

Ignore (no accrual or disclosure) unless “guarantee-type”