Carpenter, Inc

question 38

Multiple Choice

Carpenter, Inc., a wholly owned subsidiary of the U.S.-based company, Buildings Ltd., was notified of a loss contingency with an estimated cost ranging between $100,000 and $220,000. Carpenter, Inc. hired an expert appraiser who assessed that all possible dollar amounts of liability in this range are equally likely. Management of Carpenter, Inc. has estimated that there is a 65 percent chance that this contingency will result in an actual loss.According to U.S. GAAP, what is the amount recognized by Carpenter, Inc. as a provision for loss contingency?

• A) No amount will be recorded but an amount will be disclosed in the notes to the financial statements.
• B) $100,000
• C) $220,000
• D) $120,000
• E) $160,000

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Definitions:

Perceptual Process

The sequence of steps that involves receiving, selecting, organizing, interpreting, and responding to sensory information.

Social Learning Theory

A theory that posits individuals learn behaviors, norms, and values by observing and imitating the actions of others.

Continuous Reinforcement

A method of learning that involves providing a reward or positive outcome every time a desired behavior is performed.

Categorical Thinking

involves organizing or classifying information and experiences into categories to simplify and speed up the decision-making process.