Question

When a material gain contingency is probable and the amount of gain can be reasonably estimated, the gain should be _________:
A. Offset against shareholders' equity.
B. Disclosed but not recognized in the income statement.
C. Reported in the income statement and disclosed.
D. Neither recognized in the income statement nor disclosed.

Answer 1

Answer:

The correct answer is letter "B": Disclosed but not recognized in the income statement.

Explanation:

Events that cause realized gains for the company must be reported in the financial statements. In case the gain represents a contingency (uncertain activity for the firm) and remains unrealized affecting the economic decisions of the organization, then the contingency gain must be disclosed in the notes but not reported in the financial statements.