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

question 14

Multiple Choice

A contingent liability should be disclosed in a note to the financial statements rather than being recorded if:

• A)The likelihood of a loss is remote.
• B)The incurrence of a loss is reasonably possible.
• C)The incurrence of a loss is probable.
• D)The likelihood of a loss is eighty percent.

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Definitions:

Miller-Orr Model

A financial management model used to determine the optimal level of cash balance a company should maintain, considering the costs of cash management and the variability of cash flows.

Opportunity Rate

The expected rate of return on the best alternative investment option.

Monthly Cash Flows

The net amount of cash being transferred into and out of a business during a particular month.

Miller-Orr Model

A financial model used to manage cash flows and cash reserves, predicting the optimal level of cash balance a company should maintain.