Answer the following statements true (T) or false (F)
1. If a contingency that is probable can be reasonably estimated, a liability is recorded and an expense
is accrued.
2. Only contingencies that are probable and can be estimated are recorded as a liability and an accrued
expense.
3. A contingency was evaluated at year-end. Management felt it was probable that this would become an actual liability and the amount could be reasonably estimated. If this is reported on the balance sheet, it could be considered a violation of generally accepted accounting principles.
4. Contingencies that are probable but cannot be estimated are recorded as liabilities and disclosed in
the notes to the financial statements.
5. Under IFRS, "probable" is defined as more than a 50% chance.
1. True
2. True
3. False - Contingencies that are probable and can be estimated are recorded as a liability and an
accrued expense.
4. False - Contingencies that are probable but cannot be estimated are disclosed in the notes to the
financial statements.
5. True
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