A Contingency Must Be Accrued in the Accounts and Reported

question 17

Multiple Choice

A contingency must be accrued in the accounts and reported in the financial statements when

• A) the amount of the loss can be reliably estimated and it is probable that an asset is impaired or a liability incurred.
• B) it is evident that an asset has been impaired or a liability has been incurred even though the amount of the loss cannot be reliably estimated.
• C) it is not certain that funds will be available to settle damages that may arise from a pending lawsuit.
• D) a loss is expected and its amount is uncertain.

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Definitions:

Financial Institutions

Entities that provide financial services, including banks, insurance companies, pension funds, brokerage firms, and others.

Realized Rate

The actual return earned on an investment over a given time period.

Investment Horizon

Investment horizon refers to the total length of time an investor expects to hold an investment or portfolio before liquidating it.

Promised Yield

The return a bond issuer commits to pay to bondholders, usually expressed as an annual percentage.