Question

What is an existing condition, situation, or set of circumstances involving uncertainty as to possible gain (gain contingency) or loss (loss contingency) to an enterprise that will ultimately be resolved when one or more future events occur or fail to occur?

Answer 1

Loss contingency and gain contingency are situations involving uncertainty as to possible loss or gain. They are important for financial reporting and are disclosed in footnotes of financial statements.

Step-by-step explanation:

Loss contingency and gain contingency are situations involving uncertainty as to possible loss or gain to an enterprise. These contingencies will be resolved when future events occur or fail to occur. An example of a loss contingency could be a legal settlement against a company, while a gain contingency could be the outcome of a pending lawsuit in favor of the company.

Loss and gain contingencies are important for financial reporting as they impact an enterprise's financial statements. They are disclosed in footnotes to provide information to users of the financial statements.

For instance, a company may disclose a loss contingency in its financial statements if it is probable that a loss will occur and the amount can be reasonably estimated. On the other hand, a gain contingency may not be recognized until it becomes virtually certain.