Final answer:
If bankruptcy is likely and estimable, the company must recognize this in the financial statements and disclose additional details in the footnotes to comply with the principle of full disclosure and provide a true and fair view.
Step-by-step explanation:
If a bankruptcy is deemed likely to occur and can be reasonably estimated, the correct answer would be (c) Recognize in financial statements and disclose in footnotes. When a company is facing bankruptcy, it is essential to both recognize this in the financial statements and to provide detailed disclosures in the footnotes. This ensures that the financial statements present a true and fair view of the company's financial position, which is crucial for investors, creditors, and other stakeholders.
Disclosure in the footnotes is necessary to provide context and further information about the potential bankruptcy, such as the circumstances that might lead to it and the possible effects on the company's financial situation. It's also important to evaluate the likelihood and the potential financial impact that such an event may bear upon the company's obligations, including bond repayments.
The recognition in the financial statements means that appropriate provisions for losses or liabilities need to be recorded. This could impact items such as the recoverability of assets or the valuation of liabilities. The disclosure requirement is aligned with the accounting principle of full disclosure, which mandates the provision of all material information that can affect the decision-making of users of financial statements.