Cornerstones of Financial Accounting
4th Edition
ISBN: 9781337690881
Author: Jay Rich, Jeff Jones
Publisher: Cengage Learning
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Chapter A1, Problem 10MCQ
To determine
Concept introduction:
International financial reporting framework (IFRS):
International
To choose:
The true statement about the
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Which of the following statements is false?a. A contingent liability should be disclosed in the notes to the financial statements if thereis a reasonable possibility that a loss (or expense) will occur.b. All contingent liabilities should be reported as liabilities on the financial statements,even those that are unlikely to occur.c. A contingent liability is a potential obligation that depends on the future outcome of pastevents.d. A contingent liability should be accrued if the loss is probable and the amount of theloss can be reasonably estimated.
Which of the following statements is true concerning contingent liabilities?
a. Such liabilities should include obligations of known existence but of unknown amount.
b. If the definite amount is involved, it is not a contingent liability.
c. Such liabilities are generally reported and totaled with other liabilities to make up the liability section of most balance sheets.
d. Such liabilities should include obligations known in amount but unknown in existence.
When should a contingent liability be recognized and reported on the financial statements?
A. Reporting contingent liabilities do not require they be probable or reasonably estimated
B. When the contingent liability is probable
C. When a reasonable estimation can be made of the amount owed
D. When the contingent liability is probable and a reasonable estimation can be made of the amount owed
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Cornerstones of Financial Accounting
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Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.Similar questions
- 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.arrow_forwardThe Standard IAS 37 sets the criteria for recognition and measurement of Provisions; Contingent liabilities and Contingent assets; and requires several disclosures about these items to understand them better. Where do you find contingent liabilities in the financial statements? a.Notes to Accounts b.None of the options c.Current Liabilities d.Non-current Liabilitiesarrow_forwardWhich of the following statements is true?(a) The fair value option requires that some types of financial instruments be recorded at fair value.(b) The fair value option requires that all concurrent financial instruments be recorded at amortized cost.(c) The fair value option allows, but does not require, that some types of financial instruments be recorded at fair value.(d) The FASB and IASB would like to reduce the reliance on fair value accounting for financial instruments in the future.arrow_forward
- Which of the following is correct about contingent liabilities and provisions? The terms are interchangeable. A provision is based on an estimate while a contingent liability can be estimated reliably. A provision is disclosed in the statement of financial position while a contingent liability is disclosed in the notes. A contingent liability does not need to be disclosed in an entity's annual report.arrow_forwardPursuant to the conceptual framework, for an item to be characterised as a liability the definition of liabilities must be applicable to the transaction or event, and the recognition criteria should also be satisfied. Applying the definition of liabilities, there are three key components in the definition of ‘liability’, these being:1. There must be an expected future disposition of economic benefits to other entities.2. There must be a present obligation.3. A past transaction or other event must have created the obligation.Required:Take any two examples of liabilities and test if they meet all three requirements.arrow_forwardIn the case of a non-adjusting event, IAS 10 requires it to be: Select one alternative: disclosed as a contingent liability, if it is an unfavourable material event reflected in the financial statements if it is material and relates to an item that would normally be included in the financial statements disclosed by way of note if it is material reflected in the financial statements, if it is an unfavourable material event; disclosed by way of a note, if it is a favourable eventarrow_forward
- Which of the following is a characteristic of a current liability? A. It is an avoidable obligation. B. It occurs because of a future transaction or event. C. It cannot be settled with services. D. It creates a present obligation for future payment of cash or services.arrow_forwardContingent liabilities are not recorded in the financial statements. True Falsearrow_forwardWhat are the three elements of the definition for liabilities? List from the following items that are classified as liabilities and explain why, or why not, they are classified as liabilities:a) Provision for warrantyb) Unearned revenuec) GST payabled) Allowance for doubtful debtse) A disputable lawsuit looking for expert's opinionarrow_forward
- Which of the following is not a criterion that must be met for an item to be classified as a liability? A certain cash payment will occur in the future. A sacrifice will require the entity’s assets or services. There is a probable future sacrifice. There is a present obligation that results from a past transaction.arrow_forwardWhen recognizing a contingent liability, if the future event is probable (likely) and the amount can be reasonably estimated, what are we required to do? A.Group of answer choices B.Do not record or disclose C.Record the liability D. Disclose in notes on financial statementsarrow_forwardAn obligation that is contingent on the occurrence of a future event should be reported in the statement of financial position as a liability if: a. The amount of the obligation can be reasonably estimated. b. The future event is likely to occur. c. The occurrence of the future event is at least reasonably possible and the amount is known d. The occurrence of the future event is probable and the amount can be reasonably estimated.arrow_forward
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