Note: Definitions for these terms are provided in the glossary at the end of this text.

Commercial paper (p. 445)

Conservatism ratio (p. 465)

Debt ratio (p. 458)

Defined benefit plan (p. 458)

Defined contribution plan (p. 458)

Determinable current liabilities (p. 444)

Employment Retirement Income Security Act (ERISA) (p. 459)

Face value (p. 443)

Gain contingency (p. 451)

Line of credit (p. 445)

Loss contingency (p. 451)

Maturity date (p. 445)

Open account (p. 444)

Pension (p. 457)

Provisions (p. 456)

Warranty (p. 455)

ETHICS in the Real World

Earlier in the chapter we noted that FMC Corporation carries liabilities for environmental cleanup. The company estimates environmental expenses by choosing the lower end of the range of estimates in cases where no point within the range is more likely than any other. This policy ensures that the expense for environmental costs appearing on the income statement is as low as reasonably possible.

ETHICAL ISSUE Is it ethical for a company to choose the lower end of a range when estimating the level of expense to record for contingent losses such as environmental costs?


The costs associated with future environmental cleanup are significant, and companies like Waste Management, introduced at the beginning of the chapter, deal with estimating these costs continually. SFAS No. 5 provides some guidance on accounting for these costs. When was the standard issued? Summarize its contents, and explain how it applies ...

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