When the amount of a contingent liability cannot be estimated and its possible but not probable,the company should:
A)include a description in the footnotes to the financial statements.
B)record the amount of the liability times the probability of its occurrence.
C)record the liability and estimated amount of the loss on the balance sheet.
D)omit the information about the contingent liability from its financial statements and footnotes.

Question

Quizplus · Accepted Answer

When the amount of a contingent liability cannot be estimated and its possible but not probable, the company should include a description in the footnotes to the financial statements. This is because probable losses should be recognized on the financial statements, while possible losses should be disclosed in the footnotes. Since the amount cannot be estimated, recording it on the balance sheet would not be appropriate. Omitting the information would not provide sufficient transparency to investors and creditors.

When the Amount of a Contingent Liability Cannot Be Estimated