When a Company Has a Contingent Liability That Is Remote

question 45

Multiple Choice

When a company has a contingent liability that is remote in likelihood,the company should:

• A)include a description in the notes to the financial statements.
• B)record the amount of the liability times the probability of its occurrence.
• C)record the amount of the liability as a long-term liability on the balance sheet.
• D)exclude the information about the contingent liability from its financial statements and notes.

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Definitions:

Compound Interest

Interest calculated on both the initial principal and the accumulated interest from previous periods, leading to exponential growth over time.

Compounded Daily

Refers to the process of calculating interest on an initial principal, which includes both the accumulated interest from previous periods and the principal itself, on a daily basis.

Interest Rate

A percentage that represents the cost of borrowing money or the profit from saving money, adjusted annually.

Compounded Quarterly

Describes the process of adding interest to the principal sum of a deposit or loan, with this addition of interest occurring four times a year.