If management determines the loss contingency is probable and an amount can be reasonably estimated, then the company _______.
A)must record a liability and a related expense or loss, and disclose the relevant details of the event in the notes to the financial statements
B)must record an asset and a related expense or loss, and disclose the relevant details of the event in the notes to the financial statements
C)must record a liability and a related depreciation expense or loss, and disclose the relevant details of the event in the notes to the financial statements
D)should include a note in the notes to the financial statements but need not record an entry in accounting journals

Question

Quizplus · Accepted Answer

If management determines the loss contingency is probable and an amount can be reasonably estimated, then the company must record a liability and a related expense or loss, and disclose the relevant details of the event in the notes to the financial statements. This is in accordance with the accounting principle of conservatism, which requires that potential losses be recognized as soon as they are probable and reasonably estimable.

If Management Determines the Loss Contingency Is Probable and an Amount