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Contingent Liability & Unethical Accounting Explained

1. 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?

2. 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?

Solution Preview

1. 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?

Contingent liability refers to a situation where a company reports that a possibility of liability exists for an incident that has already taken place. It is when the exact upcoming impact on the finances due to this incident is not known. The time of upcoming financial obligation and monetary impact is uncertain. If a lawsuit has been filed concerning a company's product, but is unresolved, a contingent liability ...

Solution Summary

This solution contains more than 300 words of text. The first section is comprised of an overview, examples, and impact of the establishment of a contingent liability. The second section overviews situations of unethical accounting giving examples and impacts to company finances.

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