Contingent liabilities
Required
How should each of the following situations be reported in the financial statements?
a. It has been determined that one of the company’s products has caused a safety hazard. It is considered probable that liabilities have been incurred and a reasonable estimate of the amount can be made.
b. A company warehouse is located in a section of the city that has routinely flooded in the past. Consequently the company can no longer find a source of insurance for the warehouse. No flood has yet occurred this year.
c. Because of newly passed legislation, a company will have to upgrade its facilities over the next two years. Significant expenditures will occur, but at this time the amount has not been determined.