Asked by Jasmine Gardiner on Jun 26, 2024

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Which one of the following contingencies must be accrued on the balance sheet?

A) The likely loss on a lawsuit that the firm's attorneys believe will be dropped.
B) The probable loss on a lawsuit that the firm's attorneys believe will be settled for $50,000.
C) The reasonably possible loss on a lawsuit that the firm's attorneys believe will be dropped.
D) The reasonably possible loss on a lawsuit that the firm's attorneys believe will be settled for $50,000.

Contingencies

Conditional liabilities or assets that may arise due to future events, whose effects cannot be determined with certainty at the present time.

Balance Sheet

A financial statement that provides a snapshot of a company's financial condition at a specific time, showing assets, liabilities, and equity.

Lawsuit Loss

Financial damages that a company is required to pay as the result of legal judgment or settlement of a lawsuit.

  • Recognize the conditions under which contingencies must be accrued or disclosed in financial statements.
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ZK
Zybrea KnightJul 03, 2024
Final Answer :
B
Explanation :
Contingencies that are probable and estimable (in this case, a probable loss of $50,000 on a lawsuit) must be accrued on the balance sheet. The other options either have a lower likelihood of occurring or are not estimable.