Debt guarantees are:
A) A bad business practice.
B) Considered to be current liabilities.
C) Recorded as liabilities even though it is highly unlikely that the original debtor will default.
D) Considered to be contingent liabilities.
E) Never disclosed in the financial statements.

Question

Quizplus · Accepted Answer

Debt guarantees are considered to be contingent liabilities because they represent a potential future cost that will only become a liability if the debtor defaults on their obligation. Contingent liabilities are recorded in the financial statements as a footnote, rather than on the balance sheet.

Debt Guarantees Are