Answered: A contingent liability should be…

Principles of Accounting Volume 1

19th Edition

ISBN:9781947172685

Author:OpenStax

Publisher:OpenStax

Chapter12: Current Liabilities

Section: Chapter Questions

Problem 8MC: Which of the following best describes a contingent liability that is likely to occur but cannot be...

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A contingent liability should be recorded in the financial statements when the:

Select one:

a. Contingent event is probable and the amount can be reasonably estimated.

b. Contingent event is probable regardless of whether the amount can be reasonably estimated

c. Contingent event is reasonably possible or probable regardless of whether the amount can be reasonably estimated

d. Contingent event is reasonably possible and the amount can be reasonably estimated

Definition Definition Costs that a business is responsible for paying, should a particular event potentially occur in the future. Also called a potential liability, a contingent liability is generally recorded only when the amount of liability can be reasonably estimated and the contingency is likely to occur shortly. The Generally Accepted Accounting Principles (GAAP) and International Financial Reporting Principles (IFRS) make it mandatory for the companies to record any contingent liability taking the principles of full disclosure, materiality, and prudence into consideration.

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