A contingent liability:
A) Is always of a specific amount.
B) Is a potential obligation that depends on a future event arising from a past transaction or event.
C) Is an obligation not requiring future payment.
D) Is an obligation arising from the purchase of goods or services on credit.
E) Is an obligation arising from a future event.

Question

Quizplus · Accepted Answer

A contingent liability is an obligation that depends on a future event that may or may not occur, and it arises from a past transaction or event. The amount and timing of payment are uncertain and depend on the outcome of the future event. Thus, option B is the most appropriate choice. The other options do not accurately define a contingent liability.

A Contingent Liability