Can someone please check my answers dealing with various contingencies.
-For each item, indicate how the situation should be accounted for and reported for the current year. Select the best answer from the accounting and reporting treatments listed below (A through D):
1. The company agreed to co-sign a loan for a supplier. The risk of loss is remote.
2. The company is a defendant in a lawsuit. The company's attorney indicates that a loss is probable and that the amount of the loss cannot be determined. A settlement is not expected for at least three years.
3. The company is a defendant in a lawsuit. Legal counsel indicates that there is a reasonable possibility of a loss and what the amount of loss is estimable. The case will be settled next year.
4. A loss contingency from a lawsuit is considered remote.
5. The company is a defendant in a lawsuit. The company's attorney indicates that a loss is probable and can be reasonably estimated. A settlement is not expected for two years.
6. The company is the plaintiff in a lawsuit. Legal counsel indicates that it is probable and estimable that the company will receive an award for damages. The case is expected to be settled in a year and a half.
A. Item is not a contingency.
B. Item should be accrued on the financial statements.
C. No accrual is necessary, but note disclosure is required.
D. Neither accrual nor disclosure is required. (Optional Disclosure)
My answers:
1. D
2. C.
3. B
4. D
5. B.
6. B.
1 answer