When Are Contingent Liabilities Required to Be Recorded

question 106

Multiple Choice

When are contingent liabilities required to be recorded?

• A)When the liability is probable
• B)When the amount is reasonably estimable
• C)When the liability becomes legally enforceable
• D)Both the liability must be probable and the amount must be reasonably estimable before the contingent liability is recorded.

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Definitions:

Risk-Free Rate

The estimated profit percentage from an investment considered free of risk, typically indicated by government bonds' interest rates.

Common Stock

A type of security that represents ownership in a corporation, entitling the holder to vote at shareholder meetings and receive dividends.

Weighted Average Cost of Capital

This refers to the overall cost of capital for a firm, weighted by each capital component's proportion in the overall capital structure.

Market Value of Equity

The total dollar market value of a company's outstanding shares, calculated as share price times the number of shares outstanding.