Which of the following is the proper treatment for a liability that exists,but the exact amount of which is not known?
A)The liability should be ignored.
B)The liability should be treated as a contingent liability.
C)The amount of the liability should be estimated and recorded.
D)The liability should be reported in the notes to the financial statements.

Question

Quizplus · Accepted Answer

When there is a liability that exists but the exact amount is not known, it should be estimated and recorded as an accrued liability. This allows for proper financial reporting and disclosure of potential liabilities. Ignoring the liability or reporting it as a contingent liability may not accurately reflect the financial position of the company. Reporting it in the notes to the financial statements alone may not provide enough information to properly assess the impact of the liability on the company's financial status. Therefore, estimating and recording the liability is the best option.

Which of the Following Is the Proper Treatment for a Liability