Gain contingencies usually are recognized in a company's income statement when:

• A. they are realized or virtually certain to be realized.
• B. they are probable and can be reasonably estimated.
• C. they are disclosed in the notes to the financial statements.
• D. they are possible but not probable.

Answer: (A)

Verified step by step guidance

1. Understand the concept of gain contingencies: Gain contingencies refer to potential gains that may arise from uncertain future events. These are not recorded in financial statements until certain criteria are met.
2. Review the accounting principle for gain contingencies: According to accounting standards, gain contingencies are recognized only when they are realized or virtually certain to be realized. This ensures that financial statements are not misleading by including speculative gains.
3. Analyze the options provided: Evaluate each option against the accounting principle for gain contingencies. For example, 'probable and can be reasonably estimated' applies to loss contingencies, not gain contingencies.
4. Focus on the correct condition for recognition: Gain contingencies are recognized in the income statement only when they are realized or virtually certain to be realized. This is the key criterion for recognition.
5. Conclude the reasoning: Based on the analysis, the correct answer is the option that aligns with the principle of recognizing gain contingencies only when they are realized or virtually certain to be realized.