The FASB and the IASB Are Reconsidering the Role of Uncertainty

question 221

Multiple Choice

The FASB and the IASB are reconsidering the role of uncertainty, or probability, in the definition, recognition, and measurement of liabilities.Existing recognition criteria include a probable future sacrifice of resources; one issue involves the minimum probability level to warrant recognition of an uncertain obligation as a liability.U.S.GAAP does not specify a minimum probability level, although the rule-of-thumb in practice is approximately _____ percent.

• A)50
• B)60
• C)70
• D)80
• E)90

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Definitions:

Bonus Method

The bonus method is an accounting approach used in partnership transactions to reflect changes in the capital accounts of the partners when no actual cash is paid out or received.

Capital Balances

Refers to the amount of capital reported on the balance sheet, including funds contributed by owners or shareholders plus retained earnings.

Fair Value

An estimate of the price at which an asset or liability could be traded in a fair transaction between willing parties.