Which of the following statements best describes a contingent liability? A contingent liability is a:
A)liability,the amount of which is known and which definitely must be paid.
B)potential liability that has arisen because of a past transaction or event,but its ultimate outcome will not be known until a future event occurs or fails to occur.
C)liability that will only be incurred if a particular future event takes place.
D)potential liability that will be incurred if a natural disaster happens.

Question

Quizplus · Accepted Answer

A contingent liability is a potential liability that has arisen because of a past transaction or event, but its ultimate outcome will not be known until a future event occurs or fails to occur. The amount and timing of payment are uncertain and contingent upon future events. It is not a liability that definitely must be paid, as in option A, nor is it only incurred if a particular future event takes place, as in option C. Option D is a specific example of a contingent liability, but it is not a general definition of the term.

Which of the Following Statements Best Describes a Contingent Liability