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Chapter 13: Q18Q (page 691)

Distinguish between a determinable current liability and a contingent liability. Give two examples of each type.

Short Answer

Expert verified

Determining current liability is a near debt obligation that is measured exactly, while contingent liability is a liability that may or may not occur contingent on the happening of an uncertain future event.

Step by step solution

01

Step 1- Meaning of Determinable Current Liability

Determinable current liabilities are those liabilities that are determined to be payable within period of one year

Example- Accounts payable, Short term loan, etc

02

Step 3- Comparing and differentiating Determinable current liability and contingent liability

BASIS

Determinable current liability

Contingent liability

Definition

Obligations that are measured exactly

Liability that may occur depending upon uncertain future event

Accountability

Under current liabilities

Disclosed as notes usually but loss/expense if any is accounted as part of prudence

Measurability

It can be measured exactly

It may or may not be estimated since the happening of the event is uncertain

Examples

Accounts payable, commercial paper, dividends payable

Potential Lawsuits, product warranties, pending investigations

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Most popular questions from this chapter

How are the terms 鈥減robable,鈥� 鈥渞easonably possible,鈥� and 鈥渞emote鈥� related to contingent liabilities?

Under what conditions should a short-term obligation be excluded from current liabilities?

Explain the accounting for a service-type warranty.

(Available-for-Sale and Held-to-Maturity Debt Securities Entries) The following information relates to the debt

securities investments of Wildcat Company.

1. On February 1, the company purchased 10% bonds of Gibbons Co. having a par value of \(300,000 at 100 plus accrued interest.

Interest is payable on April 1 and October 1.

2. On April 1, semiannual interest is received

3. On July 1, 9% of bonds of Sampson, Inc. were purchased. These bonds with a par value of \)200,000 were purchased at 100

plus accrued interest. Interest dates are June 1 and December 1.

4. On September 1, bonds with a par value of $60,000, purchased on February 1, are sold at 99 plus accrued interest.

5. On October 1, semiannual interest is received.

6. On December 1, semiannual interest is received.

7. On December 31, the fair value of the bonds purchased February 1 and July 1 were 95 and 93, respectively.

Instructions

(a) Prepare any journal entries you consider necessary, including year-end entries (December 31), assuming these are

available-for-sale securities.

(b) If Wildcat classified these as held-to-maturity investments, explain how the journal entries would differ from those in part (a).

On December 21, 2017, Zurich Company provided you with the following information regarding its trading investments.

December 31, 2017

Investments (Trading) Cost Fair Value Unrealized Gain (Loss)

Stargate Corp. shares \(20,000 \)19,000 \((1,000)

Carolina Co. shares 10,000 9,000 1000

Vectorman Co. shares 20,000 20,600 600

Total of portfolio \)50,000 \(48,600 \)(1,400)

Previous fair value adjustment balance-0-

Fair value adjustment-Cr. \((1,400)

During 2018, Carolina Co. shares were sold for \)9,500. The fair value of the shares on December 31, 2018, was Stargate Corp.

shares-\(19,300: Vectorman Co. shares-\)20,500

Instructions

(a) Prepare the adjusting journal entry needed on December 31, 2017.

(b) Prepare the journal entry to record the sale of the Carolina Co. shares during 2018.

(c) Prepare the adjusting journal entry needed on December 31, 2018.

See all solutions

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