A Disclosure of a Contingent Liability in the Footnotes Is

question 81

Multiple Choice

A disclosure of a contingent liability in the footnotes is made rather than adjusting the financial statement accounts when

• A) The outcome of the event is judged to be reasonably possible and the loss can be reasonably estimated.
• B) The loss can be reasonably estimated, but the outcome is unknown.
• C) The outcome of the event is judged to be reasonably possible but the loss cannot be reasonably estimated.
• D) The outcome is unknown and the loss is reasonably estimable but the client does not want to book the loss.

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Definitions:

Interest

Interest is the cost paid for borrowing money, typically expressed as a percentage of the amount borrowed over a certain period of time.

Adjusting Entry

A journal entry made in the accounting records at the end of an accounting period to allocate income and expenditure to the appropriate period.

Direct Write-Off Method

An accounting practice where uncollectible accounts receivable are directly written off against revenue at the time they are deemed to be uncollectible.

Allowance Method

An accounting technique that estimates and reduces accounts receivable to reflect only amounts expected to be collected.