Which of the following is an example of a loss contingency that should be disclosed in a footnote to a company's financial statements?
A)The president of the company has threatened to resign if the board of directors does not vote to increase executive salaries.
B)A lawsuit has been brought against the company,but the company hopes to prevail in the suit and thereby avoid any liability.
C)The allowance for uncollectible accounts receivable is estimated at $200,000.
D)The company owns special-purpose machinery that,if sold,would probably bring a price less than its current book value.

Question

Quizplus · Accepted Answer

A loss contingency should be disclosed in the financial statements if it meets one of two conditions: it is probable that an asset has been impaired or a liability has been incurred at the date of the financial statements, and the amount of the loss can be reasonably estimated; or the likelihood of an asset impairment or liability incurrence is at least reasonably possible, and the amount of the loss or range of loss cannot be determined with reasonable certainty. Choice B meets the second condition as a lawsuit has been brought against the company and the outcome is uncertain. The other choices do not meet either condition for disclosure of a loss contingency.

Which of the Following Is an Example of a Loss