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Accounting for a loss contingency for a verdict overturned on appeal

  • An accrual is not made for a loss contingency because any of the conditions in paragraph 450-20-25-2 are not met;
  • The suggested journal entry is as follows;
  • And this verdict is actually an event relating to an event in previous year, and it did indicate that it is probable that a liability had been incurred at the date of the financial statements;
  • As indicated in the definition of contingency, the term loss is used for convenience to include many charges against income that are commonly referred to as expenses and others that are commonly referred to as losses;
  • Pertains to the accounting for this contingency loss, this memo has made the following conclusions:

Get Full Essay Get access to this section to get all help you need with your essay and educational issues. Pertains to the accounting for this contingency loss, this memo has made the following conclusions: M should adjust its liability for the year-end December 31, 2009, financial statements. And this adjustment should be considered a 2009 event.

M should record 18. For the year-end December 31, 2007, financial statements, what amount should M record as a liability?

Accounting for a Loss Contingency for a Verdict Overturned on Appeal Essay Sample

To record this loss contingency, the journal entry here is suggested as: For the year-end December 31, 2009, financial statements, should M adjust its liability? If so, what amount should be recorded; and should the amount of the adjustment be considered a 2009 event or a prior period adjustment?

Information available before the financial statements are issued or are available to be issued as discussed in Section 855-10-25 indicates that it is probable that an asset had been impaired or a liability had been incurred at the date of the financial statements. The amount of loss can be reasonably estimated.

  • All estimated losses for loss contingencies shall be charged to income rather than charging some to income and others to retained earnings as prior period adjustments;
  • Date of the financial statements means the end of the most recent accounting period for which financial statements are being presented;
  • The Contingencies Topic uses the terms probable, reasonably possible, and remote to identify three areas within that range;
  • M should adjust its liability for the year-end December 31, 2009, financial statements;
  • It is implicit in this condition that it must be probable that one or more future events will occur confirming the fact of the loss.

And this verdict is actually an event relating to an event in previous year, and it did indicate that it is probable that a liability had been incurred at the date of the financial statements. Thus M should adjust the amount recorded in previous year. The suggested journal entry is as follows: All estimated losses for loss contingencies shall be charged to income rather than charging some to income and others to retained earnings as prior period adjustments.

  • It is implicit in this condition that it must be probable that one or more future events will occur confirming the fact of the loss;
  • The suggested journal entry is as follows;
  • If so, what amount should be recorded; and should the amount of the adjustment be considered a 2009 event or a prior period adjustment?
  • For the year-end December 31, 2009, financial statements, should M adjust its liability?
  • And ruling was issued in December 2010, of which information was available before the financial statements to be issued;
  • Journal entries are recorded as:

Thus, the adjustment should be recorded an event in 2009. As ASC 450-20-25-2 states, an estimated loss from a loss contingency shall be accrued by a charge to income if both of the following conditions are met: Date of the financial statements means the end of the most recent accounting period for which financial statements are being presented. It is implicit in this condition that it must be probable that one or more future events will occur confirming the fact of the loss.

The verdict was overturned by the Court of Appeals in 2010; the recorded amount of loss contingency consequently has to be reversed. And ruling was issued in December 2010, of which information was available before the financial statements to be issued.

Journal entries are recorded as: Because the verdict was overturned by the higher court in December 2010, option of further appeal is still available for W. And M can surely predict that W would do that later in year 2011.

  1. An accrual is not made for a loss contingency because any of the conditions in paragraph 450-20-25-2 are not met. For the year-end December 31, 2007, financial statements, what amount should M record as a liability?
  2. The verdict was overturned by the Court of Appeals in 2010; the recorded amount of loss contingency consequently has to be reversed.
  3. An accrual is not made for a loss contingency because any of the conditions in paragraph 450-20-25-2 are not met.
  4. Date of the financial statements means the end of the most recent accounting period for which financial statements are being presented. An accrual is not made for a loss contingency because any of the conditions in paragraph 450-20-25-2 are not met.

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