Final answer:
Contingent liabilities that may be found on a balance sheet prepared under U.S. GAAP include legal claims, warranty obligations, and environmental liabilities if the criteria of probability and the ability to estimate the amount are met. The correct answer is 4) All of the above.
Step-by-step explanation:
Contingent liabilities are potential liabilities that may occur depending on the outcome of an uncertain future event. Under U.S. GAAP (Generally Accepted Accounting Principles), companies are required to record these liabilities on the balance sheet when it is probable that the liability will occur and the amount can be reasonably estimated.
The types of contingent liabilities that would most likely be found on a balance sheet prepared under U.S. GAAP include:
- Legal claims: If a company is currently involved in a lawsuit and it is probable that they will lose, the estimated loss should be recorded as a liability.
- Warranty obligations: If a company sells products with warranties and it is probable that they will have to pay for warranty claims, an estimate of these costs should be recorded.
- Environmental liabilities: If a company is responsible for environmental clean-up and it is probable that they will have to pay for these costs, the company must record an estimated liability.
Therefore, the correct answer is 4) All of the above. Each of these types of contingent liabilities could appear on the balance sheet if the criteria under GAAP are met.