Contingent liabilities should be recorded as liabilities on the balance sheet if the likelihood of loss or payment is "probable." If likelihood of loss is reasonably possible,_____.
A)the liability may or may not be recorded in the footnotes to financial statements
B)the contingent liability should be disclosed in the footnotes to the financial statements
C)the liability should be disclosed in the footnotes as well as on the face of the financial statements.
D)no mention of the liability needs to be made in the financial statements

Question

Quizplus · Accepted Answer

If likelihood of loss is reasonably possible, the contingent liability should be disclosed in the footnotes to the financial statements. This is because although the liability may not be recorded on the balance sheet, it still could have a significant impact on the financial position of the company and thus should be disclosed to provide transparency to stakeholders.

Contingent Liabilities Should Be Recorded as Liabilities on the Balance