A Company Has a Contingent Loss That Can Be Estimated

question 217

Multiple Choice

A company has a contingent loss that can be estimated and has a probable chance of occurrence. What reporting does FASB require regarding this contingency?

• A) It should be reported in the notes to the financial statements.
• B) It should be ignored until the actual loss occurs.
• C) It should be accrued, reported on the financial statements and disclosed in the notes to the financial statements.
• D) Nothing is required since there is only a probable chance of occurrence.

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Definitions:

Total Capital

The sum of a company's debt and equity, representing the total funds available for the business to use.

Partners' Equity

The owners' claim or interest in the assets of a partnership, after all liabilities have been subtracted.

Capital Account

An account used in economics and finance to track the net changes in a nation's assets and liabilities or a company's equity provided by shareholders and retained earnings.

Loss On Realization

The financial loss recognized when assets are sold for less than their carrying amount during the liquidation of a company.