The rules for recording financial guarantees require a company that makes a guarantee to record
A) The smaller of the fair value of the guarantee or the amount that would be required under loss contingency rules
B) The amount required by the loss contingency rules
C) The fair value of the guarantee
D) The larger of the fair value of the guarantee or the amount that would be required under loss contingency rules

Question

Quizplus · Accepted Answer

The rules for recording financial guarantees require a company to record the larger of the fair value of the guarantee or the amount that would be required under loss contingency rules. This is because the company must recognize the potential liability associated with the guarantee, even if it is not the most likely outcome. Thus, the recorded amount should reflect the worst-case scenario.

The Rules for Recording Financial Guarantees Require a Company That