If a Contingent Liability Is Reasonably Estimable and It Is

question 4

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:

Flexible Budget

A flexible budget adjusts expenses based on changes in actual revenue or other activity levels, allowing for more accurate financial planning.

Cost Drivers

Factors that cause a change in the cost of an activity, such as machine hours, labor hours, or material size.

Vocational School

An educational institution that provides training and skills for specific trades or careers, focusing on practical job-related skills.

Revenue Variances

The difference between actual revenue and budgeted or forecasted revenue, indicating if a business is performing above, on, or below expectations.