Orange Co. can estimate the amount of loss that will occur if a foreign government expropriates some of the company's assets in that country. If expropriation is reasonably possible, a loss contingency should be:
A) Disclosed but not accrued as a liability.
B) Disclosed and accrued as a liability.
C) Accrued as liability but not disclosed.
D) Neither accrued as a liability nor disclosed.

Question

Quizplus · Accepted Answer

According to accounting principles, if a loss is considered reasonably possible but not probable, and the amount can be reasonably estimated, the loss contingency should be disclosed in the financial statements but not accrued as a liability. This approach ensures that users of the financial statements are informed about the potential loss without prematurely recognizing a liability that may not occur.

Orange Co Can Estimate the Amount of Loss That Will Occur