Question 1. Discuss the difficulties in accounting for estimated liabilities. Does accounting for estimated liabilities create problems or opportunities for financial statement prepares? Explain.
Question 2. Define what is meant by contingent liability? Why do contingent liabilities create such difficult problems for financial statement users and prepares?
Question 3. Identify the differences between common stock and preferred stock. As a manager, what are the factors that you might consider in deciding to raise capital by issuing capital stock versus issuing preferred stock? As an investor, would you invest in a firm's common stock or preferred stock? Explain.
Question 4. What makes accounting for convertible bonds and convertible preferred stock so controversial? Do you think that convertible bonds should be accounted for as debt or as equity? Explain.