Crankwell Inc. is preparing its annual financial statements and report to shareholders. Management wants to be sure that all of the necessary and proper disclosures are incorporated into the financial statements and the annual report. Two classes of items that have an important bearing on the financial statements are subsequent events and contingent liabilities. The financial statements could be materially inaccurate or misleading if proper disclosure of these items is not made.

Required:
a. With respect to subsequent events:
(1) Define subsequent events.
(2) Identify the two types of subsequent events and explain the appropriate financial statement presentation of each type.
b. With respect to contingent liabilities:
(1) Identify the essential elements of a contingent liability.
(2) Explain how a contingent liability should be disclosed in the financial statements.
c. Explain how a subsequent event may relate to a contingent liability. Give an example to support your answer.