A contingent liability
A) Is another name for a long-term liability
B) Only arise when accounts receivable are factored
C) Arise when a note receivable is discounted without recourse
D) Is an obligation to make a future payment if a certain future event occurs
E) Is an obligation to make a future payment if an uncertain future event occurs

Question

Quizplus · Accepted Answer

A contingent liability is an obligation that may arise from past events, but the outcome is dependent on uncertain future events. It is not a long-term liability which is a known obligation that will be paid beyond the current year. Contingent liabilities can arise in various situations such as pending lawsuits, warranties on products sold, or guarantees on loans made to third parties. They are only recognized as a liability and recorded in the financial statements if the likelihood of occurrence is probable and the amount can be reasonably estimated. Factors and discounts on notes receivable do not necessarily give rise to contingent liabilities.

A Contingent Liability