Quiz 13.71 – Recognition of Loss Contingencies in Financial Statements
Intermediate Accounting
Spiceland, Nelson, and Thomas
10th Edition
When should a loss contingency be accrued in a company’s financial statements?
When should a loss contingency be accrued in a company’s financial statements?
Under what circumstances should a contingent loss be reported in a disclosure note instead of being accrued in the financial statements?
What is an example of a contingency that should be accrued?
What is the required action for a reasonably estimable contingency, such as a product recall due to a material defect discovered after the fiscal year-end, that has not yet been reported in the financial statements?
EPK Company received a $10 million arbitration judgment against it for a claim made in 2020 related to alleged product defects from 2019. EPK had not accrued any litigation loss prior to learning of the judgment and does not plan to appeal. What action should EPK take in its 2021 fiscal year?
KPN suffered an accident at its manufacturing facility after the 2021 fiscal year end, which is expected to cause material losses, and KPN has relatively precise estimates of the losses. What should KPN do in this situation before issuing its financial statements?
How are incentive programs for customer purchases accounted for?
How would you describe a monetary rebate program offered for purchasing a product?
What is typically the outcome for a seller when they offer an extended warranty?
What is the responsibility of a seller when providing a quality-assurance warranty?