Houston Company is involved in a lawsuit.In which of the following situations is only a note disclosure of the contingent liability reported within the financial statements?
A)When the loss is remote and the amount cannot be reasonably estimated.
B)When the loss is probable and the amount can be reasonably estimated.
C)When the loss is reasonably possible and the amount can be reasonably estimated.
D)When the loss is remote and the amount can be reasonably estimated.

Question

Quizplus · Accepted Answer

A note disclosure of a contingent liability is required when the loss is considered reasonably possible, regardless of whether the amount can be reasonably estimated. This approach provides users of the financial statements with information about potential liabilities that could affect the financial position of the company, without requiring the company to recognize a liability that may not occur.

Houston Company Is Involved in a Lawsuit