Some Thinkings of Intel Case

ESTIMATED LIABILITIES

Estimated liabilities refers to liabilities that appear in financial statements at estimated dollar amounts. The matching principle requires that the expense of performing warranty work be recognized in the period in which the products are sold, in order to offset this expense against the related sales revenue. Because of the uncertainty regarding when warranty work will be performed, accountants traditionally have classified the liability for warranty claims as a current liability.

(Financial & Managerial

Accounting, 17th Edition 461)

So we need to consider Intel case from the perspective of estimated liabilities if they provide any warranties to the products they sold. Suppose that within the warranty period, the cost related to replacement of the defective chips are covered by the warranties, which belong to a contra-liabilities account. Thus the first step of these is only to write down the estimated amount in contra liability account once the products are sold.

LOSS CONTINGENCIES

Central to the definition of a loss contingency is the element of uncertainty—uncertainty as to the amount of loss and, in some cases, uncertainty as to whether or not any loss actually has been incurred. A common example of a loss contingency is a lawsuit pending against a company. The lawsuit is based on past events, but until the suit is resolved, uncertainty exists as to whether the company has sustained a loss and, if it has, how much was that loss.

(Financial & Managerial

Accounting, 17th Edition 461)

Financial & Managerial

Accounting, 17th Edition. McGraw-Hill Create. .