Under ASPE, a Contingent Liability Is Recorded in the Accounting

question 70

Multiple Choice

Under ASPE, a contingent liability is recorded in the accounting records

• A)if it is likely that a future event will confirm that a liability has been incurred and the amount of the related loss can be estimated.
• B)if the contingency has not already been disclosed in the notes to the financial statements.
• C)if the amount can be estimated, but the possibility of occurrence is remote.
• D)under no circumstances.

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Definitions:

Direct Write-off Method

An accounting approach where uncollectible accounts receivable are directly written off against income at the time they are deemed unrecoverable.

Uncollectible Accounts Receivable

Debts owed to a company that are considered to be uncollectible from the debtor, often leading to the account being written off as a bad debt expense.

Allowance for Doubtful Accounts

An estimate of the amount of accounts receivable that may not be collectible, serving as a contra account to adjust the value of total receivables.

Net Realizable Value

The estimated selling price of an asset in the ordinary course of business minus any costs associated with its sale or disposal.