Existing Claims Related to Product Warranties and Litigation as of December

question 12

Multiple Choice

Existing claims related to product warranties and litigation as of December 31, 2016, indicate that it is probable that a liability has been incurred. However, as of December 31, 2016, the amount of the obligation cannot be reasonably estimated. Based on these facts, an estimated loss contingency should be

• A) accrued.
• B) disclosed but not accrued.
• C) neither accrued nor disclosed.
• D) classified as an appropriation of retained earnings.

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Definitions:

Public Sector Accounting Board

A regulatory body responsible for setting accounting standards and financial reporting guidelines for public sector entities.

External Parties

Individuals or organizations that are not part of a company but have an interest or interaction with it, such as customers, suppliers, or regulators.

Government Business Organization

An entity directly operated by the government that engages in commercial activities, often with a public service or economic objective.

Non-Business Government Organization

An entity that operates within the government framework but is not focused on commercial or business activities, often tasked with policy implementation or service provision.