Item B. Contingent Liability Facts: You are auditing a very successful and highly profitable manufacturing company as of December 31, 2020. The Company has always maintained adequate insurance in different areas. The Company has decided, effective January 1, 2021, not to purchase insurance against risk of loss that may result from injury to others, damage to the property of others, or interruption of its business operations. The Company would like to record a $5,000,000 reserve as of December 31, 2020 for claims associated with future events which may occur. Required: Should the Company record this $5,000,000 Reserve for Claims (a contingent liability) in its 12/31/2020 Financial Statements? Why or why not?
Item B. Contingent Liability Facts: You are auditing a very successful and highly profitable manufacturing company as of December 31, 2020. The Company has always maintained adequate insurance in different areas. The Company has decided, effective January 1, 2021, not to purchase insurance against risk of loss that may result from injury to others, damage to the property of others, or interruption of its business operations. The Company would like to record a $5,000,000 reserve as of December 31, 2020 for claims associated with future events which may occur. Required: Should the Company record this $5,000,000 Reserve for Claims (a contingent liability) in its 12/31/2020 Financial Statements? Why or why not?
Intermediate Accounting: Reporting And Analysis
3rd Edition
ISBN:9781337788281
Author:James M. Wahlen, Jefferson P. Jones, Donald Pagach
Publisher:James M. Wahlen, Jefferson P. Jones, Donald Pagach
Chapter4: The Balance Sheet And The Statement Of Shareholders' Equity
Section: Chapter Questions
Problem 5C: It is February 16, 2020, and you are auditing Davenport Corporation's financial statements for 2019...
Related questions
Question
Item B.
Facts:
- You are auditing a very successful and highly profitable manufacturing company as of December 31, 2020.
- The Company has always maintained adequate insurance in different areas. The Company has decided, effective January 1, 2021, not to purchase insurance against risk of loss that may result from injury to others, damage to the property of others, or interruption of its business operations.
- The Company would like to record a $5,000,000 reserve as of December 31, 2020 for claims associated with future events which may occur.
Required:
- Should the Company record this $5,000,000 Reserve for Claims (a contingent liability) in its 12/31/2020 Financial Statements? Why or why not?
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
This is a popular solution!
Trending now
This is a popular solution!
Step by step
Solved in 2 steps
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.Recommended textbooks for you
Intermediate Accounting: Reporting And Analysis
Accounting
ISBN:
9781337788281
Author:
James M. Wahlen, Jefferson P. Jones, Donald Pagach
Publisher:
Cengage Learning
Intermediate Accounting: Reporting And Analysis
Accounting
ISBN:
9781337788281
Author:
James M. Wahlen, Jefferson P. Jones, Donald Pagach
Publisher:
Cengage Learning