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Chapter 11: Q13RQ (page 604)

What is a contingent liability? Provide some examples of contingencies.

Short Answer

Expert verified

Contingent liabilities are potential but not actual and depend upon some future event.

Step by step solution

01

Contingent Liability

A contingent liability is an obligation that is based on a future event. This is a potential liability and not an actual liability. It is called contingent because it cannot be confirmed in present but can only be made sure after the happening of any future event.

02

Examples of contingencies

Some examples of the contingencies are as follow:

a) Claim over patent infringement

b) Any kind of lawsuit against the company

c) Warranty expense

d) Co-signing a notes payable

e) Giving a guarantee for third parties etc.

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Most popular questions from this chapter

Theodore Simpson works for Blair Company all year and earns a monthly salary of \(4,000. There is no overtime pay.

Based on Theodore鈥檚 W-4, Blair withholds income taxes at 15% of his gross pay. As of July 31, Theodore had \)28,000 ofcumulative earnings.

Journalize the accrual of salary expense for Blair Company related to the employment of Theodore Simpson for the month ofAugust.

What are the two main controls for payroll? Provide an example of each.

The following transactions of Jasmine Reef occurred during 2018:

Apr. 30 Reef is party to a patent infringement lawsuit of \(190,000. Reef鈥檚attorney is certain it is remote that Reef will lose this lawsuit.

Jun. 30 Estimated warranty expense at 2% of sales of \)350,000.

Jul. 28 Warranty claims paid in the amount of \(5,500.

Sep. 30 Reef is party to a lawsuit for copyright violation of \)80,000. Reef鈥檚attorney advises that it is probable Reef will lose this lawsuit. Theattorney estimates the loss at \(80,000.

Dec. 31 Reef estimated warranty expense on sales for the second half of the yearof \)510,000 at 2%.

Requirements

1. Journalize required transactions, if any, in Reef 鈥檚 general journal. Explanations arenot required.

2. What is the balance in Estimated Warranty Payable assuming a beginning balanceof $0?

Question:Abernathy Electronics reported the following amounts on its 2018 income statement: Year Ended December 31, 2018 Net income $ 45,000 Income tax expense 6,750 Interest expense 3,750 What is Abernathy鈥檚 times-interest-earned ratio for 2018? (Round to two decimals.)

What do short-term notes payable represent?
See all solutions

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