Contingent Corporation has the following contingencies on its horizon: $30,000 20,000 30,000 ?
(a) A lawsuit by Corporation Z, for which it is probable that Contingent will have to pay $20,000
(b) A reasonable possibility that Contingent will win a tax court case, resulting in a tax refund of $19,000
(c) A remote chance of hurricane damage to its building, resulting in a $17,000 loss
(d) A reasonably possible chance that Contingent will win a $10,000 lottery. (Contingent's chief executive officer may be able to "rig" the drawing!)
Determine the correct accounting treatment for each of the above.
ANSWER
a)-Record in Balance Sheet as liability because there is high chance that Contigent Corporation has to pay these $20000.We record as Contigent liablity when there is more than 50% chance of occuring.
b)-No treatment ,Whenever there is chance of some income even if it is proable don't record as a income and asset.
c)-No Treatment in Statement of Income or Balance Sheet but we will show it in a Foot note of balance sheet because whenever there is remote or less than 50% chance of occurance or expense or liability we show it in a foot note of balance sheet.
d)-No treatment ,Whenever there is chance of some income even if it is proable don't record as a income and asset.
Contingent Corporation has the following contingencies on its horizon: $30,000 20,000 30,000 ? (a) A lawsuit...
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