Question

If management determines the loss contingency is probable and an amount can be reasonably estimated, then the company _________________.

A. Must record a liability and a related expense or loss, and disclose the relevant details of the event in the notes to the financial statements
B. Must record an asset and a related expense or loss, and disclose the relevant details of the event in the notes to the financial statements
C. Must record a liability and a related depreciation expense or loss, and disclose the relevant details of the event in the notes to the financial statements
D. Has no reporting obligation as the loss contingency is considered immaterial.

Answer 1

If the loss contingency is probable and estimable, the company must record a liability and disclose details in the financial statements, making answer A correct.

Step-by-step explanation:

If management determines the loss contingency is probable and an amount can be reasonably estimated, then the company must record a liability and a related expense or loss, and disclose the relevant details of the event in the notes to the financial statements.

Therefore, the correct answer is A. Must record a liability and a related expense or loss, and disclose the relevant details of the event in the notes to the financial statements.

This accounting treatment is required by generally accepted accounting principles (GAAP) and is essential for ensuring that financial statements provide a fair representation of the company's financial condition.