Which of the Following Is an Example of a Loss

question 23

Multiple Choice

Which of the following is an example of a loss contingency that should be disclosed in a footnote to a company's financial statements?

• A)The president of the company has threatened to resign if the board of directors does not vote to increase executive salaries.
• B)A lawsuit has been brought against the company,but the company hopes to prevail in the suit and thereby avoid any liability.
• C)The allowance for uncollectible accounts receivable is estimated at $200,000.
• D)The company owns special-purpose machinery which,if sold,would probably bring a price less than its current book value.

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Definitions:

Trial Balance

A bookkeeping worksheet in which the balances of all ledgers are compiled into debit and credit account column totals to ensure a company's bookkeeping system is mathematically correct.

Allowance for Uncollectibles

A contra-asset account used to reduce accounts receivable to its net realizable value by estimating the amount of receivables that may not be collected.

Gross Accounts Receivable

The sum of money that a company's customers owe before subtracting any provisions for accounts that might not be collectible.

Net Accounts Receivable

The total amount of money owed to a company for goods or services that have been delivered but not yet paid for, minus any provisions for bad debts.