Contingencies and Accounting Treatments
From the e-Activity(see below), briefly discuss the type of contingencies that Coca Cola is involved in and the accounting treatment of such contingencies. Give your opinion on whether the notes to the financial statements disclose the necessary information on the contingencies for interested parties to make an investing decision. Based on the information disclosed, decide whether you would you invest in Coca Cola. Justify your rationale.
- Suppose management is involved in a situation where the outcome of the situation is contingent upon certain events to occur; however, management is unsure of the generally accepted accounting principles for reporting contingencies. You are the senior accountant, and management has tasked you with preparing a report on contingencies. Distinguish between a gain contingency and a loss contingency, and highlight the accounting treatment for each type of contingency. Also, recommend two (2) improvements to the reporting requirements on loss contingencies to FASB.
Go to Reuters Website to read the article titled “Update 1-Overstock to Restate 2008 Results” dated February 4, 2010.
http://www.reuters.com/article/2010/02/04/overstock-idUSN049847120100204
- evaluate and discuss how the under billings should have been accounted for in the original financial statements.
- Should the under billings be treated as gain contingencies? Explain your position.
(E Activity)Review financial data on Coca-Cola notes to financial statements, located at http://assets.coca-colacompany.com/9b/d3/b75cdce348fa907295f549d2cc7e/2009_12_Coca-Cola_Item8.pdf, specifically Note 8: Commitments and Contingencies on page 93. Be prepared to discuss.
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The two main Coca-Cola contingencies are for tax and legal proceedings. They can be either contingent assets or contingent liabilities. In case of contingent assets, they should not be reported in the financial report before they are realized…
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