Which of the following statements concerning contingencies is correct?

I. Gain contingencies are recorded if they are probable and reasonably estimable.
II. Unredeemed frequent flyer mileage is an example of a loss contingency.
III. A loss contingency is a form of off-balance sheet financing.
IV. Loss contingencies are not recognized unless there is a greater than 95% chance they will be realized.

A)I, II, III, and IV
B)II, III, and IV
C)II and III
D)II only

Question

Which of the following statements concerning contingencies is correct?

I. Gain contingencies are recorded if they are probable and reasonably estimable.
II. Unredeemed frequent flyer mileage is an example of a loss contingency.
III. A loss contingency is a form of off-balance sheet financing.
IV. Loss contingencies are not recognized unless there is a greater than 95% chance they will be realized.

A)I, II, III, and IV
B)II, III, and IV
C)II and III
D)II only

Quizplus · Accepted Answer

Statement I is incorrect because gain contingencies are not recognized until they are realized. Statement III is incorrect because a loss contingency does not have any impact on the balance sheet or off-balance sheet financing. Statement IV is incorrect because losses are recognized if they are probable and reasonably estimable, regardless of the percentage chance that they will be realized. Statement II is correct because unredeemed frequent flyer mileage could result in a future liability for the airline, making it an example of a loss contingency.

Which of the Following Statements Concerning Contingencies Is Correct