When Are Contingent Liabilities Recorded

question 146

Multiple Choice

When are contingent liabilities recorded?

• A) If they are probable and estimable, they must be recorded even before the outcome of the future event.
• B) If they are probable and estimable, they should be disclosed in the notes to the financial statements.
• C) The accounting principle that determines whether a contingent liability is to be recorded is that of historical cost.
• D) Contingencies that are not estimable should not be recorded or disclosed in the financial statements even if they are probable.

---

Definitions:

Government Intervention

The involvement by government in the market to influence the allocation of resources and distribution of income.

Coase Theorem Solution

A theory suggesting that if trade or negotiation over property rights is allowed without cost, parties can reach an agreement regarding the allocation of resources regardless of the initial allocation.

Mutually Agreeable

A situation or outcome in negotiations or agreements that all parties involved accept and are satisfied with.

Cap-And-Trade

An environmental policy tool that aims to reduce pollutants by setting a limit (cap) on emissions and allowing companies to buy and sell permissions (trade) to emit up to a certain limit, incentivizing pollution reduction.