Problem Solving Survival Guide to accompany Financial Accounting, 8th Edition

SUMMARY OF LEARNING OBJECTIVES

1. Describe the accounting and disclosure requirements for contingent liabilities. If it is probable that the contingency will happen (if it is likely to occur) and the amount can be reasonably estimated, the liability should be recorded in the accounts. If the contingency is only reasonably possible (it could occur), then it should be disclosed only in the notes to the financial statements. If the possibility that the contingency will happen is remote (unlikely to occur), it need not be recorded or disclosed.
2. Contrast the accounting for operating and capital leases. For an operating lease, lease (or rental) payments are recorded as an expense by the lessee (renter). For a capital lease, the lessee records the asset and related obligation at the present value of the future lease payments.
3. Identify additional fringe benefits associated with employee compensation. Additional fringe benefits associated with wages are paid absences (paid vacations, sick pay benefits, and paid holidays), postretirement health care and life insurance, and pensions. The two most common types of pension arrangements are a defined-contribution plan and a defined-benefit plan.