Understanding contingent liabilities... Suppose you wanted to buy a car but could not afford it. Your parents agreed to cosign the loan. A contingent liability has been created based on an event occurring or not occurring specifically, your payment on the loan. If you pay the loan, your parents contingent liability disappears. If you do not pay the loan, the contingent liability becomes a real liability to your parents.

Discuss the accounting for the contingent liabilities that might occur on your parents books when you buy the car. Why did you require a co-signor and what should be reported?

Discuss the reporting that is required if you fail to pay your payments. Note any journal entries that would be required or footnotes that might be written and support your answer with the logic for contingencies in the text.

Discuss the reporting that is required if you pay your payments in a timely basis and payoff the loan. Note any journal entries that would be required or footnotes that might be written and support your answer with the logic for contingencies in the text.