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

Types of Liabilities

Financial Accounting

9. Current Liabilities

Types of Liabilities

Previous problemNext problem

Struggling with Financial Accounting?

Join thousands of students who trust us to help them ace their exams!Watch the first video

Multiple Choice

In the accounting records of a defendant, lawsuits are typically:

Recorded as a contingent liability if the loss is probable and can be reasonably estimated.

Always recorded as a current liability regardless of outcome.

Recorded as an asset until the case is resolved.

Never disclosed in the financial statements.

Previous problemNext problem

Verified step by step guidance

Understand the concept of contingent liabilities: Contingent liabilities are potential obligations that may arise depending on the outcome of a future event, such as a lawsuit.

Review the criteria for recording contingent liabilities: According to accounting standards (e.g., GAAP or IFRS), a contingent liability should be recorded in the financial statements if two conditions are met: (1) the loss is probable, and (2) the amount can be reasonably estimated.

Analyze the options provided in the problem: Evaluate each option against the criteria for contingent liabilities. For example, 'Recorded as a contingent liability if the loss is probable and can be reasonably estimated' aligns with the accounting standards.

Eliminate incorrect options: For instance, 'Always recorded as a current liability regardless of outcome' is incorrect because contingent liabilities depend on probability and estimability, not certainty. Similarly, 'Recorded as an asset until the case is resolved' is incorrect because lawsuits are not assets. 'Never disclosed in the financial statements' is incorrect because contingent liabilities must be disclosed if they meet certain criteria.

Conclude with the correct approach: Based on the analysis, lawsuits in accounting records are recorded as contingent liabilities if the loss is probable and can be reasonably estimated. If the loss is not probable or cannot be reasonably estimated, it may still be disclosed in the notes to the financial statements.