Presented below are several facts related to ABC Company. Assume that no mention of these facts...

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Accounting

Presented below are several facts related to ABC Company. Assumethat no mention of these facts was made in the financial statementsand the related notes. Your job is to determine the appropriateaccounting treatment and disclosure to the notes to the financialstatements. You must be specific on what details should be includedto the notes of the financial statements.
It is probable the contingency will result in a $100,00 loss,but it is reasonably possible the loss could be $500,000.
Equipment purchases of $275,000 were partly financed during theyear through the issuance of a $150,000 notes payable. The companyoffset the equipment against the notes payable and reported plantassets at $125,000.
ABC Company has reported its ending inventory at $2,500,000 inthe financial statements. No other information related toinventories is presented in the financial statements and relatednotes.
ABC company changed its method of valuing inventories fromweighted-average to FIFO. No mention of this change was made in thefinancial statements.

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4.4 Ratings (725 Votes)

1 It is probable the contingency will result in a 10000 loss but it is reasonably possible the loss could be 500000 A contingent liability is recognized only when its occurrence can be estimated and it is probable Thus it is treated as below PARTICULARS DEBIT CREDIT Loss 100000 To Contingent liability 100000 In notes to accounts if the contingency loss is possible then full disclosure is to be made See Answer

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