Under What Condition Should a Pending Lawsuit Be Recognized as a Liability

Multiple Choice

Under what condition should a pending lawsuit be recognized as a liability on a company's balance sheet?

A) The outcome is reasonably possible.
B) The outcome is probable.
C) The amount can be reasonably estimated.
D) Both the outcome is probable and the amount can be reasonably estimateD.A contingent liability should be recorded in the financial statements as a liability if the outcome is considered probable and the amount owed can be reasonably estimated. If it is considered only reasonably possible, it is only disclosed in the footnotes.