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James Olds buys a four-year, $1,000,000 certificate of deposit from the Second National Bank. James

Subject

Accounting

Type

Homework

Rating

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The actual keyword to the solution is:
Bond amortization and discount, interest expenses and contingency liability based on which
the research has to be made..
Appropriate conclusion in this case will be:
As per 450-20-25-1 and 3 there is only remote chances for early withdrawals exists and the
Bank must use the method as per the mentioned section, monthly pro-rata approach for
recognizing the amount of interest due to James.
Appropriate link for reference:
http://www.aicpa.org/Research/Standards/AuditAttest/DownloadableDocuments/AU-
00337B.pdf
http://www.uic.edu/classes/actg/actg593/Cases/ASC/Standards/ASC-450-20-Loss-
Contingencies-Orig.pdf
https://law.resource.org/pub/us/code/bean/fasb.html/fasb.310.2011.html
“450-20-25-1. When a loss contingency exists, the likelihood that the future event or events
will confirm the loss or impairment of an asset or the incurrence of a liability can range from
probable 4 to remote. 5 As indicated in the definition of contingency the term loss is used for
convenience to include many charges against income that are commonly referred to as
expenses and others that are commonly referred to as losses. The Contingencies Topic uses
the terms probable, reasonably possible, 6 and remote to identify three areas within that
range.
Assessing Probability of Incurrence of a Loss:
450----20----25----3. The conditions in the preceding paragraph are not intended to be
so rigid that they require virtual certainty before a loss is accrued. Instead, the condition in (a)
in the preceding paragraph is intended to proscribe accrual of losses that relate to future
periods.

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