In Accounting for a Contingent Liability, If the Likelihood of the Obligation

question 42

Multiple Choice

In accounting for a contingent liability, if the likelihood of the obligation is possible, a company must

• A) recognize the liability and report it on the balance sheet.
• B) provide disclosure in the footnotes to the financial statements.
• C) not recognize or disclose the liability until it is certain and the exact amount is known.
• D) do nothing.

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Definitions:

Pick Disease

A rare neurodegenerative disease that causes progressive destruction of nerve cells in the brain, leading to changes in behavior, personality, and ultimately severe dementia.

Korsakoff Syndrome

A chronic memory disorder caused by severe deficiency of thiamine (vitamin B1), most commonly due to alcohol misuse, characterized by memory loss and confabulation.

Apraxia

A neurological condition characterized by the inability to perform movements or gestures, despite having the desire and physical capability to do so.

Agnosia

A neurological condition where a person is unable to recognize and identify objects, persons, sounds, shapes, or smells, despite having the necessary sensory functions.