A Contingent Liability Is Recorded in the Accounting Records

question 2

Multiple Choice

A contingent liability is recorded in the accounting records

• A) if a reasonable estimate of the expected loss can be determined and if it is probable.
• B) if the contingency has not already been disclosed in the notes to the financial statements.
• C) if it will possibly become an actual liability, and the exact amount is unknown.
• D) under no circumstances.

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Definitions:

Return on Equity

A financial ratio that measures the profitability of a corporation in relation to stockholders’ equity, indicating how well a company uses investment funds to generate earnings growth.

Sales

The activity or business of selling products or services.

Expenses

Outflows of money or other valuable assets, incurred as a result of operating activities or in the pursuit of generating revenues.

Debts Incurred

Obligations or liabilities taken on during the course of financial transactions, often as a result of borrowing money or purchasing goods and services.