A Contingent Loss Should Be Disclosed in a Note to the Financial

question 51

Multiple Choice

A contingent loss should be disclosed in a note to the financial statements but should not be recorded as a liability if the

• A) possibility of loss is remote.
• B) actual incurrence of a loss is reasonably possible.
• C) outcome is uncertain.
• D) contingency involves pending or threatened litigation.

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Definitions:

Income Effect

Adjustments in the income of an individual or the broader economy and the consequent effects on how much of a good or service is desired.

Law of Diminishing

refers to the principle that as one consumes more of a good, the marginal utility (or satisfaction) obtained from consuming an additional unit decreases.

Substitution Effect

The substitution effect occurs when consumers replace more expensive items with less costly alternatives, influencing demand patterns as prices fluctuate.

Utility-maximizing

The economic principle whereby consumers adjust their consumption of goods and services to achieve the highest level of satisfaction or utility.