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 one of the following would be considered a contingent liability?

Accounts payable for goods already received

A pending lawsuit against the company with an uncertain outcome

Common stock issued to shareholders

A mortgage payable due in five years

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Verified step by step guidance

Understand the concept of a contingent liability: A contingent liability is a potential obligation that may arise depending on the outcome of a future event. It is not recorded as a liability on the balance sheet unless the event is probable and the amount can be reasonably estimated.

Analyze the options provided: Each option needs to be evaluated to determine if it meets the definition of a contingent liability.

Option 1: 'Accounts payable for goods already received' - This is not a contingent liability because it is a definite obligation that has already been incurred and is recorded as a liability on the balance sheet.

Option 2: 'A pending lawsuit against the company with an uncertain outcome' - This fits the definition of a contingent liability because the obligation depends on the outcome of the lawsuit, which is uncertain at this point.

Option 3: 'Common stock issued to shareholders' and Option 4: 'A mortgage payable due in five years' - Neither of these are contingent liabilities. Common stock represents equity, and a mortgage payable is a definite liability with a fixed repayment schedule.