Listed below are two items impacting a Scott Company for which the outcome of events is unknown at year-end.

(1) Scott Company offers a 3-year warranty on its equipment. It believes 2% of the equipment will need an average of $400 per unit of repairs over the warranty period.

(2) Scott Company is being sued by a Supplier. The Companys Legal Counsel believes there may likely be an unfavourable verdict, but cannot make a reasonable estimate of the probable loss.

Required: (a) Identify which of the items above should be recorded as Liabilities at Year end

and Why?

(b) Identify which of the items above should not be recorded as Liabilities but should be disclosed in the Year-end Financial Statements instead and Why?

Question #2 Listed below are two items impacting a Scott Company for which the outcome of events is unknown at year-end. Scott Company offers a 3-year warranty on its equipment. It believes 2% of the equipment will need an average of $400 per unit of repairs over the warranty period. (1) (2) Scott Company is being sued by a Supplier. The Company's Legal Counsel believes there may likely be an unfavourable verdict, but cannot make a reasonable estimate of the probable loss