If a Contingent Liability Is Reasonably Estimable and It Is

question 61

Multiple Choice

If a contingent liability is reasonably estimable and it is reasonably possible that the contingency will occur the contingent liability

• A) should be recorded in the accounts.
• B) should be disclosed in the notes accompanying the financial statements.
• C) should not be recorded or disclosed in the notes until the contingency actually happens.
• D) must be paid for the amount estimated.

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Definitions:

Plowback Ratio

The proportion of earnings retained by a company after dividends are paid, usually to fund growth or pay down debt.

Debt-Equity Ratio

A measure used to evaluate a company's financial leverage, calculated by dividing its total liabilities by its shareholders' equity.

Financial Plan

A comprehensive evaluation of an individual's or organization's current and future financial state by using known variables to predict future cash flows, asset values, and withdrawal plans.

Capital Budgeting Decisions

The process by which a business evaluates and selects long-term investments that are worth more than their cost, considering their potential to generate future profits.