If a Loss Contingency Related to a Lawsuit Against a Firm

question 17

Multiple Choice

If a loss contingency related to a lawsuit against a firm is deemed to have a remote probability of requiring ultimate payment, then the proper accounting treatment of the loss contingency will

• A)increase the debt/equity ratio.
• B)increase the debt/asset ratio.
• C)have no effect on earnings per share.
• D)increase the quick ratio.

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Definitions:

Difference Threshold

The minimum difference in intensity or quantity required for a person to detect a change between two stimuli.

Separation Threshold

The minimum physical distance or difference that can be discerned between two stimuli.

Absolute Threshold

The smallest intensity of a stimulus that can be detected by the senses at least 50% of the time.

Auditory Convergence

The coordination and integration of sound signals from both ears in the brain, contributing to the localization and understanding of sound.