Final answer:
The correct answer is that it is recognized as a current liability when a future obligation is probable and can be reasonably estimated. This reflects an expected financial outlay and informs creditors and investors about the firm's short-term obligations.
Step-by-step explanation:
If the likelihood of a future obligation arising is probable (likely) and its amount can be reasonably estimated, then it is recognized as a current liability. In accounting, a future obligation that meets these criteria represents a liability that the firm is expected to settle within a year or within the operating cycle if longer. This is because the obligation is not just a potential or uncertain event (contingent liability), but one that is likely to occur and for which the firm can set aside resources or anticipate in financial planning.
Firms that have solid revenues and profit history are deemed credible and thus can borrow money through various means, such as bank loans or issuing bonds. These borrowing methods are based on the firm's ability to make a compelling promise to pay back with interest due to their financial stability.