Q5TI - Horngren'S Financial And Managerial Accounting

Question

Match the likelihood of a future event with the reporting of the contingency. An answer may be selected more than once. 

Likelihood of Future Event	How to Report the Contingency
Remote	Do not disclose. Record an expense and a liability based on estimated amounts.  Describe the situation in a note to the financial statements.

Step-by-Step Solution

Answer

Remote contingency do not disclose.

Step 1: Reason for remote contingency not disclose

A remote possibility's likelihood of happening in the future is low. A remote contingency does not require the corporation to record a liability or declare it in the notes to the financial statements.

Step 2: Example

A lawsuit against the corporation is one of the most well-known examples of remote contingent liabilities. It depends on an uncertain future event and represents potential losses for the company.