CPA FAR - Contingencies,
Commitments, and Guarantees
questions and answers
Describe the accounting treatment when a loss contingency is reasonably possible. - AnswerDisclose
in footnotes.
Describe the accounting treatment when a loss contingency is probable but not reasonably
estimable. - AnswerDisclose in footnotes.
What is the meaning of remote in the context of contingent liabilities? - AnswerBased on
professional judgment, the probability of occurrence is considered to be very low, or as the title
implies, remote.
Describe the accounting treatment when a loss contingency is remote. - AnswerCan be disclosed in
footnotes, but not required.
What is the meaning of reasonably possible in the context of contingent liabilities? - AnswerBased
on professional judgment, the probability of occurrence is neither very high nor remote.
List the contingency's probability of occurrence categories. - Answer1. Probable;
2. Reasonably Possible;
3. Remote.
Define "contingency". - AnswerAn existing condition (at the balance sheet date) involving
uncertainty as to a possible gain or loss that will be resolved when a future event occurs or fails to
occur.
Describe the accounting treatment when a loss contingency is probable and can be reasonably
estimated. - Answer1. Record loss and liability;
2. If only a range is estimable, must recognize liability for lowest amount in range.
What is the meaning of probable in context of contingent liabilities? - AnswerBased on professional
judgment, the probability of occurrence is considered very high or a near certainty.
Commitments, and Guarantees
questions and answers
Describe the accounting treatment when a loss contingency is reasonably possible. - AnswerDisclose
in footnotes.
Describe the accounting treatment when a loss contingency is probable but not reasonably
estimable. - AnswerDisclose in footnotes.
What is the meaning of remote in the context of contingent liabilities? - AnswerBased on
professional judgment, the probability of occurrence is considered to be very low, or as the title
implies, remote.
Describe the accounting treatment when a loss contingency is remote. - AnswerCan be disclosed in
footnotes, but not required.
What is the meaning of reasonably possible in the context of contingent liabilities? - AnswerBased
on professional judgment, the probability of occurrence is neither very high nor remote.
List the contingency's probability of occurrence categories. - Answer1. Probable;
2. Reasonably Possible;
3. Remote.
Define "contingency". - AnswerAn existing condition (at the balance sheet date) involving
uncertainty as to a possible gain or loss that will be resolved when a future event occurs or fails to
occur.
Describe the accounting treatment when a loss contingency is probable and can be reasonably
estimated. - Answer1. Record loss and liability;
2. If only a range is estimable, must recognize liability for lowest amount in range.
What is the meaning of probable in context of contingent liabilities? - AnswerBased on professional
judgment, the probability of occurrence is considered very high or a near certainty.
