Answered: Which of the following statements is…

Cornerstones of Financial Accounting

4th Edition

ISBN:9781337690881

Author:Jay Rich, Jeff Jones

Publisher:Jay Rich, Jeff Jones

Chapter8: Current And Contingent Liabilities

Section: Chapter Questions

Problem 12MCQ

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Which of the following statements is false?
Select one:
a. A contingent liability should be disclosed in the notes to the financial statements if there is a reasonable possibility that a loss (or expense) will occur.
b. A contingent liability should be accrued if the loss is probable and the amount of the loss can be reasonably estimated.
c. A contingent liability is a potential obligation that depends on the future outcome of past events.
d. All contingent liabilities should be reported as liabilities on the financial statements, even those that are unlikely to occur.

Definition Definition Costs that a business is responsible for paying, should a particular event potentially occur in the future. Also called a potential liability, a contingent liability is generally recorded only when the amount of liability can be reasonably estimated and the contingency is likely to occur shortly. The Generally Accepted Accounting Principles (GAAP) and International Financial Reporting Principles (IFRS) make it mandatory for the companies to record any contingent liability taking the principles of full disclosure, materiality, and prudence into consideration.

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