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Worked-example setupScope and assumptions
- Cedar Trail Sensors, all legal matters, debt terms, correspondence, dates, and amounts are fictional and supplied for instruction.
- The product claim concerns a December condition; an unfavorable outcome is supplied as probable; $180,000 to $420,000 is a reasonable range; no amount is a better estimate.
- The supplier dispute concerns a December condition and is supplied as reasonably possible, with a $50,000 to $140,000 range and $90,000 as an analytical estimate that does not change nonrecognition.
- The January fire creates a new condition after December 31; its supplied $300,000 loss is not recognized in the 2027 statements but is evaluated for disclosure.
- A possible $150,000 insurance recovery remains a separate gain/recovery lane and is not recognized by this model.
- The $600,000 note is contractually current; current Topic 470 analysis supplies $400,000 as qualifying long-term refinancing.
- The $900,000 covenant note is supplied as callable current exposure with no qualifying waiver relief in this bounded calculation; learners do not infer that result for another contract.
- Period
- Annual reporting period ending December 31, 2027; statements issued March 15, 2028
- Units
- US dollars and calendar dates
- Rounding
- Dollar schedules retain full precision and display to whole dollars
Cover sheet: do not let later paperwork erase December 31
The legal and debt files span December 31 through March 15 issuance. Every row keeps its condition date, evidence date, source, current standard, amount, and review status. The FASB's 2026 project is marked tentative.
Legal-matter schedule
| Matter | December 31 condition? | Supplied likelihood | Supported estimate | 2027 recognition | Disclosure support |
|---|---|---|---|---|---|
| Product claim | Yes | Probable | $180,000–$420,000; no better amount | $180,000 | Nature, accrual, and up to $240,000 additional exposure |
| Supplier dispute | Yes | Reasonably possible | $50,000–$140,000 | — | Nature and possible range |
| January fire | No; new January condition | Probable after event | $300,000 | — | Nonrecognized subsequent-event evaluation |
The supplier's $90,000 analytical estimate does not turn a reasonably possible matter into a recognized loss. The January fire's certainty after the event does not backdate the condition.
The only legal-loss entry is:
Dr Loss from product claim $180,000
Cr Accrued legal liability $180,000
A possible $150,000 insurance recovery remains separate. This schedule recognizes no gain and performs no netting.
Debt-classification schedule
| Debt | Carrying amount | Current exposure before refinancing | Qualifying refinancing | Current | Noncurrent |
|---|---|---|---|---|---|
| March note | $600,000 | $600,000 | $(400,000) | $200,000 | $400,000 |
| Covenant note | 900,000 | 900,000 | — | 900,000 | — |
| Total | $1,500,000 | $1,100,000 | $400,000 |
The covenant-note classification is a supplied conclusion for this bounded calculation. The workpaper still retains breach, lender rights, waiver evidence, future compliance, subjective terms, and issuance chronology.
Reconciliation and boundary
Current debt of $1,100,000 plus the $180,000 recognized product-claim loss produces $1,280,000 in this bounded current-liability schedule. The $680,000 sum of displayed unrecognized high-end exposure is a workpaper control across different matters—not an expected loss, liability, or number suitable for aggregation in a note.
The model does not establish probability, legal merit, range support, refinancing qualification, waiver sufficiency, covenant enforceability, materiality, recovery recognition, or disclosure wording.
Quantitative companions
Choose from 2 ways to work with this calculation.
Verified calculation · liability contingency analysis
The curriculum loader recomputed this example before it entered the site build. Expand any structured input to inspect the stated facts.
- debts
- 2 fields
Inspect data
{
"covenant_note": {
"callable_current_amount": 900000,
"carrying_amount": 900000,
"contractually_current_amount": 0,
"qualifying_long_term_refinance_amount": 0
},
"maturing_note": {
"callable_current_amount": 0,
"carrying_amount": 600000,
"contractually_current_amount": 600000,
"qualifying_long_term_refinance_amount": 400000
}
}- gain contingencies
- 1 field
Inspect data
{
"possible_insurance_recovery": 150000
}- loss contingencies
- 3 fields
Inspect data
{
"january_fire": {
"better_estimate": 300000,
"estimate_high": 300000,
"estimate_low": 300000,
"existing_condition_at_balance_sheet_date": false,
"probability_conclusion": "probable"
},
"product_claim": {
"better_estimate": null,
"estimate_high": 420000,
"estimate_low": 180000,
"existing_condition_at_balance_sheet_date": true,
"probability_conclusion": "probable"
},
"supplier_dispute": {
"better_estimate": 90000,
"estimate_high": 140000,
"estimate_low": 50000,
"existing_condition_at_balance_sheet_date": true,
"probability_conclusion": "reasonably_possible"
}
}Recomputed result
| Measure | Value |
|---|---|
| covenant note current debt | 900,000 |
| covenant note current exposure before refinance | 900,000 |
| covenant note noncurrent debt | 0 |
| gain contingency recognized | 0 |
| gain contingency review count | 1 |
| january fire additional exposure | 300,000 |
| january fire disclosure review flag | 1 |
| january fire recognized loss | 0 |
| loss contingency disclosure review count | 3 |
| maturing note current debt | 200,000 |
| maturing note current exposure before refinance | 600,000 |
| maturing note noncurrent debt | 400,000 |
| maturing note qualifying refinance | 400,000 |
| product claim additional exposure | 240,000 |
| product claim disclosure review flag | 1 |
| product claim recognized loss | 180,000 |
| supplier dispute additional exposure | 140,000 |
| supplier dispute disclosure review flag | 1 |
| supplier dispute recognized loss | 0 |
| total additional exposure | 680,000 |
| total current debt | 1,100,000 |
| total noncurrent debt | 400,000 |
| total recognized contingency | 180,000 |
| total recognized current liabilities | 1,280,000 |