Bunsen Company Is Involved in a Consumer Liability Lawsuit

question 71

Multiple Choice

Bunsen Company is involved in a consumer liability lawsuit. Company attorneys have assessed the contingent outcomes of the lawsuit. Because the attorneys think the company will probably lose the lawsuit, To prepare for this loss, Bunsen management has decided to set aside funds in an investment account that earns a 9% return rate. Furthermore, there is general agreement that there is a 60% probability the company will have to pay the defendants $6 million four years from now; a 30% probability the company will need to pay $10 million eight years from now, and a 10% probability the company will pay nothing. What amount should Bunsen accrue as a contingent liability?

• A) $4,055,928
• B) $6,179,473
• C) $6,600,000
• D) $9,269,210

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Definitions:

Planning Budget

A forward-looking budget that sets forth revenue and expense targets for a future period, often used for strategic financial planning.

Spending Variance

The difference between the actual amount of money spent and the budgeted amount expected to be spent.

Food And Supplies

Items necessary for the operation of a service, especially in the hospitality and retail industries, including edible products and necessary equipment.

Tenant-Days

A metric used in property management to calculate the total number of days tenants occupy a space within a given period.