Final answer:
When a company encounters a remote contingent liability, they should disclose it in the financial notes or footnotes of their financial statements to ensure transparency and provide stakeholders with relevant information.
Step-by-step explanation:
When a company encounters a contingent liability that is remote (not probable or even possible) in likelihood, the company should disclose the contingent liability in the financial notes or footnotes of their financial statements. This allows the company to provide relevant information to stakeholders and potential investors about the contingent liability, even though it is not expected to materialize.
Disclosing the remote contingent liability helps ensure transparency in the company's financial reporting and allows stakeholders to make informed decisions based on the potential risks the company may face. It also demonstrates the company's commitment to providing accurate and complete financial information.
For example, if a company is involved in a pending lawsuit, but the likelihood of an unfavorable outcome is remote, the company should still disclose the lawsuit in the financial notes or footnotes. This would include details about the nature of the lawsuit, potential financial impact, and any other relevant information.