How is a contingent liability reported if it is considered "reasonably possible?"
A) The liability may or may not be recorded in the footnotes to financial statements.
B) The contingent liability should be disclosed in the footnotes to the financial statements.
C) The liability should be disclosed in the footnotes as well as on the face of the financial statements.
D) No mention of the liability needs to be made in the financial statements.

Question

Quizplus · Accepted Answer

If a contingent liability is considered "reasonably possible," it should be disclosed in the footnotes to the financial statements. This means that even though the liability is not recorded on the face of the financial statements, users of the financial statements are still made aware of the potential liability through the footnotes. Disclosing the contingent liability in the footnotes allows users to take the information into consideration when making decisions based on the financial statements.

How Is a Contingent Liability Reported If It Is Considered