Topic $2$: Contingent Liabilities

$$ An existing uncertain situation that might result in a loss for a company depending on the outcome of a

future event.

$$ A contingent liability is recorded only if a loss is probable and the amount is reasonably estimable.

$5)$ A clothing company is a defendant in litigation involving an employee accident in its manufacturing plant.

Required: For each of the following scenarios, determine the appropriate way to report the situation.

Explain your reasoning.

$1.$ The likelihood of a loss occurring is probable and the estimated loss is $$650,000.$

$2.$ The likelihood of a loss occurring is probable and the loss is estimated to be in the range of $$500,000$ to

$$800,000.$

$3.$ The likelihood of a loss occurring is reasonably possible and the estimated loss is $$650,000.$

$4.$ The likelihood of a loss occurring is remote, while the estimated potential loss is $$650,000.$

Balance Sheet Income Statement

Assets Liabilities Common

Stock

Retained

Earnings

Revenue Expenses Net Income