RECOGNITION AND REPORTING OF CONTINGENT LIABILITIES. Match the appropriate accounting treatment with each of the potential liabilities listed below.

Your answer should list the numbers 1 through 10 and, opposite each number, the letter of the appropriate accounting treatment.

ACCOUNTING TREATMENT

a) Estimate the amount of liability and record.

b) Do not record as a liability but disclose in a footnote to the financial statements.

c) Neither record as a liability nor disclose in a footnote to the financial statements.

POTENTIAL CONTINGENT LIABILITY 1. Income taxes related to net income of the current year and taxable income of a future year .

. Income taxes related to net income and taxable income of a future year

. Estimated cost of future services under a product warranty related to past sales

. Estimated cost of future services under a product warranty related to future sales 5. Estimated cost of pension benefits related to past employee services that has yet to be funded 6. Loss from out-of-court settlement of lawsuit that is likely to occur toward the end of next year 7. Potential loss on environmental cleanup suit against company (A court judgment against the company is considered less than probable but more than. remotely likely.)

8. Potential loss under class-action suit by a group of customers (During the current year, the likelihood of a judgment against the company has increased from remote to possible but less than probable.)

9. Potential loss under an affirmative action suit by a former employee (The likelihood of a judgment against the company is considered to be remote.)

10. Potential loss from a downturn in future economic activity