Lecture Financial and managerial accounting (2nd Edition), Appendix J - Other significant liabilities. This chapter’s objectives are to: Describe the accounting and disclosure requirements for contingent liabilities, discuss the accounting for lease liabilities and off-balance-sheet financing, discuss additional fringe benefits associated with employee compensation. | Learning Objectives Describe the accounting and disclosure requirements for contingent liabilities. 1 Discuss the accounting for lease liabilities and off-balance-sheet financing. 2 Appendix J Other Significant Liabilities Discuss additional fringe benefits associated with employee compensation. 3 Potential liability that may become an actual liability in the future. Three levels of probability: Probable Reasonably possible Remote LO 1 LEARNING OBJECTIVE Describe the accounting and disclosure requirements for contingent liabilities. 1 Accounting Probability Accrue Footnote Ignore Probable Reasonably Possible Remote Contingent Liabilities LO 1 A contingent liability should be recorded in the accounts when: it is probable the contingency will happen, but the amount cannot be reasonably estimated. it is reasonably possible the contingency will happen, and the amount can be reasonably estimated. it is probable the contingency will happen, and the amount can be reasonably estimated. it is reasonably possible the contingency will happen, but the amount cannot be reasonably estimated. Question Contingent Liabilities LO 1 Product warranty contracts result in future costs that companies may incur in replacing defective units or repairing malfunctioning units. Estimated cost of honoring product warranty contracts should be recognized as an expense in the period in which the sale occurs. Recording a Contingent Liability Contingent Liabilities LO 1 Illustration: Denson Manufacturing Company sells 10,000 washers and dryers at an average price of $600 each. The selling price includes a one-year warranty on parts. Denson expects that 500 units (5%) will be defective and that warranty repair costs will average $80 per unit. In 2017, the company honors warranty contracts on 300 units, at a total cost of $24,000. At December 31, compute the estimated warranty liability. Illustration J-1 Computation of estimated product warranty liability Recording a Contingent Liability LO 1 . | Learning Objectives Describe the accounting and disclosure requirements for contingent liabilities. 1 Discuss the accounting for lease liabilities and off-balance-sheet financing. 2 Appendix J Other Significant Liabilities Discuss additional fringe benefits associated with employee compensation. 3 Potential liability that may become an actual liability in the future. Three levels of probability: Probable Reasonably possible Remote LO 1 LEARNING OBJECTIVE Describe the accounting and disclosure requirements for contingent liabilities. 1 Accounting Probability Accrue Footnote Ignore Probable Reasonably Possible Remote Contingent Liabilities LO 1 A contingent liability should be recorded in the accounts when: it is probable the contingency will happen, but the amount cannot be reasonably estimated. it is reasonably possible the contingency will happen, and the amount can be reasonably estimated. it is probable the contingency will happen, and the amount can be reasonably estimated. it is
