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Discuss contingencies and how they are reported on financial

Discuss contingencies and how they are reported on financial statements. What conditions must be met before a contingency can be charged against income?

For each of the intended uses of the derivatives listed below, explain the accounting in fair value:
o Derivative designated as a hedge of the exposure to changes in the fair value of a recognized asset or liability to or firm commitment
o Derivative designated as a hedge of the exposure to variable cash flows of a forecasted transaction
o Derivative designated as a hedge of the foreign currency exposure of a net investment in a foreign operation
o Derivative not designated as a hedge

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Discuss contingencies and how they are reported on financial statements. What conditions must be met before a contingency can be charged against income?

-- Accounting for loss contingencies is governed by SFAS No. 5. Loss contingencies are classified according to likelihood as remote, reasonably possible, and probable. Loss contingencies are considered remote when there is only a slight chance of the loss contingency happening. If the contingency is reasonably possible, it indicates that there is a more than remote chance, but less then probable chance of the contingency happening. If the loss contingency is determined to be probable, it indicates that the events leading to the loss contingency are likely to occur. The loss contingency can only be charged against income if the following two conditions are met:

(1) The amount of the loss contingency can be reasonably estimated, and
(2) The information that is available prior to issuing the financial statements indicates that "it is probable that an asset had been impaired or a liability had been incurred at the date of the financial statements" (SFAS No. ...

Solution Summary

Discuss contingencies and how they are reported on financial statements. What conditions must be met before a contingency can be charged against income?

For each of the intended uses of the derivatives listed below, explain the accounting in fair value:
o Derivative designated as a hedge of the exposure to changes in the fair value of a recognized asset or liability to or firm commitment
o Derivative designated as a hedge of the exposure to variable cash flows of a forecasted transaction
o Derivative designated as a hedge of the foreign currency exposure of a net investment in a foreign operation
o Derivative not designated as a hedge

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