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

Contingent liabilities must be recorded in the financial statements if:

It is possible, but not probable, that a future event will confirm the liability.

The liability is remote and cannot be estimated.

The liability is probable, but the amount cannot be reasonably estimated.

It is probable that a future event will confirm the liability and the amount can be reasonably estimated.

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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. They are classified based on the likelihood of occurrence (probable, possible, or remote) and whether the amount can be reasonably estimated.

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

Analyze the options provided in the problem: Evaluate each statement to determine whether it meets the criteria for recording contingent liabilities. For example, liabilities that are possible but not probable, or remote and cannot be estimated, do not meet the criteria for recording.

Focus on the correct answer: The correct answer is that contingent liabilities must be recorded if it is probable that a future event will confirm the liability and the amount can be reasonably estimated. This aligns with the accounting standards for recognition.

Apply this understanding to similar problems: Use this knowledge to assess contingent liabilities in other scenarios, ensuring you evaluate both the likelihood of occurrence and the ability to estimate the amount accurately.