Question

value 16.66 points T. The following three independent sets of facts relate to contingent liabilities: manufactured during the past two years. A flaw in the battery cable was discovered and the recall provides for of the defective cables. The estimated cost of this recall is $2 million 2. The EPA has notified a company of violations of s waste. These certain there will be cost associated with the cleanup, but cannot estimate the amount. The cleanup cost could be as high as $4,000,000 or as little as $500,000 and insurance could reimburse all or part of the cost laws relating to h actions seek cleanup costs, penalties, and damages to property. The There is no way to more ly estimate the cost to the company at this time. 3. Holland Company does not carry property damage insurance because of the cost. The company has each of the past three years. However, it has had no losses for the current year. Management thinks this is too good to be true and is sure there will be significant losses in the a. What are three categories of contingent liabilities

Answer 1

a)

1.Contingent liability (with a chance of 90% of occurance) 2.Contingent liability (but have to shown in notes to accounts) 3.Not a contingent liability.  

b) Entry:

1) Repairs a/c Dr. $2 million To provision for repairs a/c $2 million [being provision for repairs created]

2) No journal entry required. 3) No journal entry required.

Note: The is following anwer is to the best of my knowledge.