If the likelihood of an obligation is remote:
A)no action is necessary in the accounting treatment.
B)the disclosure with explanation is put into the financial statement footnotes.
C)the obligation with the estimated dollars is recorded on the Balance Sheet.
D)the obligation with the estimated dollars is recorded and put into the footnotes.

Question

Quizplus · Accepted Answer

When the likelihood of an obligation is considered remote, generally accepted accounting principles (GAAP) do not require any action to be taken in terms of recording or disclosing the obligation in the financial statements. This is because the chance of the event occurring and having a financial impact on the entity is considered too low to warrant reporting.

If the Likelihood of an Obligation Is Remote