Table of contents

1. Introduction to Accounting1h 21m
2. Transaction Analysis1h 13m
3. Accrual Accounting Concepts2h 38m
4. Merchandising Operations2h 30m
5. Inventory1h 55m
6. Internal Controls and Reporting Cash1h 16m
7. Receivables and Investments3h 8m
8. Long Lived Assets5h 1m
9. Current Liabilities2h 19m
10. Time Value of Money1h 23m
- Time Value of Money Equations
  35m
- Using Time Value of Money Tables
  47m
11. Long Term Liabilities2h 45m
12. Stockholders' Equity2h 15m
13. Statement of Cash Flows2h 24m
14. Financial Statement Analysis5h 25m
15. GAAP vs IFRS56m

9. Current Liabilities

Contingent Liabilities

Financial Accounting

9. Current Liabilities

Contingent Liabilities

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Multiple Choice

Which of the following situations is NOT considered a contingent liability?

A company has an outstanding loan payable due in 12 months.

A company is under investigation for possible environmental violations.

A company has signed a guarantee for a loan taken by another entity.

A company is being sued, and the outcome is uncertain.

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Verified step by step guidance

Step 1: Understand the concept of contingent liabilities. Contingent liabilities are potential obligations that may arise depending on the outcome of a future event. They are not recorded as liabilities unless the event is probable and the amount can be reasonably estimated.

Step 2: Analyze each situation provided in the problem to determine whether it qualifies as a contingent liability. For example, being under investigation for environmental violations or being sued with an uncertain outcome are contingent liabilities because they depend on future events.

Step 3: Evaluate the situation where a company has signed a guarantee for a loan taken by another entity. This is also considered a contingent liability because the company may be required to fulfill the guarantee if the other entity defaults.

Step 4: Examine the situation where a company has an outstanding loan payable due in 12 months. This is NOT a contingent liability because it is a definite obligation that is already recorded as a liability on the company's balance sheet.

Step 5: Conclude that the situation involving the outstanding loan payable due in 12 months is the correct answer to the question, as it does not meet the criteria for a contingent liability.