Farley Motors, Inc., a motorcycle manufacturer, included the following note (adapted) in its annual report: Notes to
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Notes to Consolidated Financial Statements
7 Commitments and Contingencies (Adapted)
The Company self-insures its product liability losses in the United States up to $3,000,000.
Catastrophic coverage is maintained for individual claims in excess of $3,000,000 up to $25,000,000.
Requirements
1. Why are these contingent (versus actual) liabilities?
2. How can a contingent liability become an actual liability for Farley Motors? What are the limits to the company’s product liabilities in the United States?
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Related Book For
Financial And Managerial Accounting
ISBN: 9780135080191
2nd Edition
Authors: Charles T Horngren, Jr Walter T Harrison
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