Financial and Managerial Accounting

Appendix G Other Significant Liabilities

Learning Objectives

After studying this appendix, you should be able to:

1. Describe the accounting and disclosure requirements for contingent liabilities.
2. Contrast the accounting for operating and capital leases.
3. Identify additional fringe benefits associated with employee compensation.

In addition to the current and long-term liabilities discussed in Chapter 10, several more types of liabilities may exist that could have a significant impact on a company's financial position and future cash flows. These other significant liabilities will be discussed in this appendix. They are (a) contingent liabilities, (b) lease liabilities, and (c) additional liabilities for employee fringe benefits (paid absences and postretirement benefits).

Contingent Liabilities

LEARNING OBJECTIVE 1

Describe the accounting and disclosure requirements for contingent liabilities.

With notes payable, interest payable, accounts payable, and sales taxes payable, we know that an obligation to make a payment exists. But, suppose that your company is involved in a dispute with the Internal Revenue Service (IRS) over the amount of its income tax liability. Should you report the disputed amount as a liability on the balance sheet? Or, suppose your company is involved in a lawsuit which, if you lose, might result in bankruptcy. How should you report this major contingency? The answers to these questions are difficult because these liabilities are dependent—contingent—upon ...