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Contingent Liability and Unethical situation

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What is an example of a situation that requires the establishment of a contingent liability? Why should a company establish a contingent liability? How does the establishment of a contingent liability impact earnings?

What is an example of a potentially unethical accounting situation? Why is the situation unethical? How do ethics impact the financial results of a company?

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Solution Summary

The solution explains when a contingent liability is to be established and an example of a potentially unethical accounting situation.

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What is an example of a situation that requires the establishment of a contingent liability? Why should a company establish a contingent liability? How does the establishment of a contingent liability impact earnings?

A contingent liability is a liability that is dependent on the occurrence of a future event.
The FASB has defined the following terms in an attempt to define this range.

Probable-the future event or events are likely to occur
Reasonably possible-the chance of the future event or events occurring is more than remote but less than likely
Remote-the chance of the future event or events occurring is slight

A contingent liability should be established if the following two conditions are met.
1. As of the ...

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