Question

If a potential loss on a contingent liability is remote, the liability usually is

A) disclosed in footnotes, but not accrued.
B) neither accrued nor disclosed in footnotes.
C) accrued and indicated in the body of the financial statements.
D) disclosed in the auditor's report but not disclosed on the financial statements

Answer 1

If a potential loss on a contingent liability is remote, the liability is typically disclosed in footnotes but not accrued.

Step-by-step explanation:

If a potential loss on a contingent liability is remote, the liability usually is disclosed in footnotes, but not accrued.

Contingent liabilities are potential obligations that may arise depending on the outcome of uncertain future events. Examples of contingent liabilities include pending lawsuits, warranties, and guarantees.

When the potential loss on a contingent liability is remote, it means that the likelihood of the liability actually occurring is very low. In such cases, accounting standards require the disclosure of the contingent liability in the footnotes of the financial statements, but it does not need to be accrued. Accruing a liability means recognizing it as an expense or a loss in the financial statements.