A contingent liability is an obligation that should be:
A) Disclosed in a footnote to the balance sheet when the contingency is not significant
B) Recorded in the accounts if the amount may be reasonably estimated and it is probable that the future event creating the obligation will occur
C) Classified in the owners' equity section of the balance sheet when the future event creating the liability is not likely to occur
D) Recorded in the accounts and classified in a contingent liabilities section of the balance sheet between current liabilities and long-term liabilities
E) None of the above

Question

Quizplus · Accepted Answer

Contingent liabilities are recorded in the accounts if it is probable that the future event will occur and the amount can be reasonably estimated. This approach aligns with accounting principles that require recognition of obligations that are likely to affect the financial position of the entity.

A Contingent Liability Is an Obligation That Should Be