How Should a Contingent Liability Be Reported in the Financial

question 50

Multiple Choice

How should a contingent liability be reported in the financial statements when it is "reasonably possible" the company will have to pay the liability at a future date?

• A) As a deferred liability
• B) As an accrued liability
• C) As a disclosure only
• D) As an account payable with an additional disclosure explaining the nature of the transaction

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Definitions:

Disposable Income

The amount of money that households have available for spending and saving after income taxes have been accounted for, serving as an indicator of economic health.

Savings

Money that is set aside from income not used for consumption, which may be stored for future expenses, investments, or emergencies.

Capital Stock

The total amount of physical and financial assets owned by a company or country, including buildings, machinery, and equity investments.

Net Investment

The amount of investment in new capital (such as equipment, buildings, and inventory) minus depreciation of existing capital.