If a loss is either probable or estimable, but not both, and if there is at least a reasonable possibility that a liability may have been incurred, the proper accounting treatment would be reflected by which of the following?
A) Record the loss and the related liability, but at an amount that is significantly conservative.
B) Record the loss and the related liability, but indicate in a footnote to the financial statements that this loss may not occur because one of the criteria may not be met.
C) Disclose in the footnotes to the financial statements (1) the nature of the contingency, and (2) an estimate of the possible loss or range of loss or a statement that an estimate cannot be made.
D) Do not record the contingency or make mention of it in the financial statements because it lacks meeting the required criteria.

Question

Quizplus · Accepted Answer

For accounting purposes, when a loss is either probable or estimable but not both, and there is at least a reasonable possibility of a liability, the appropriate action is to disclose the nature of the contingency and an estimate of the possible loss or range of loss (or state that an estimate cannot be made) in the footnotes to the financial statements. This approach ensures transparency without prematurely recognizing a loss that may not occur.

If a Loss Is Either Probable or Estimable, but Not