Under What Condition Should a Pending Lawsuit Be Recognized as a Liability

question 115

Multiple Choice

Under what condition should a pending lawsuit be recognized as a liability on a company's balance sheet?

• A)The outcome is reasonably possible.
• B)The outcome is probable.
• C)The amount can be reasonably estimated.
• D)Both the outcome is probable and the amount can be reasonably estimateD.A contingent liability should be recorded in the financial statements as a liability if the outcome is considered probable and the amount owed can be reasonably estimated. If it is considered only reasonably possible, it is only disclosed in the footnotes.

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Definitions:

Supplemental Oxygen

Additional oxygen provided to patients to ensure they receive adequate oxygen levels in their blood, commonly used in conditions of respiratory distress or chronic lung conditions.

Suctioning

The process of removing obstructions, like fluids, from the body or a body part using a vacuuming action.

Bacterial Endocarditis

An infection of the inner lining of the heart's valves or chambers, typically caused by bacteria.

Prophylactic Antibiotics

Antibiotics given as a preventative measure against infection, rather than to treat an existing infection.