Which of the Following Is the Proper Treatment for a Contingency

question 78

Multiple Choice

Which of the following is the proper treatment for a contingency that is probable but the exact amount of which is not known? The amount can be estimated.

• A) The liability should be doubled following conservatism.
• B) The liability should be estimated and recorded.
• C) The liability should be ignored.
• D) The liability should be reported in the notes to the financial statements.

---

Definitions:

Substitution Effect

The economic understanding that as prices rise or incomes decrease, consumers will replace more expensive items with less costly alternatives.

Income Effect

The Income Effect refers to the change in an individual's or economy's income and how that change will affect the quantity demanded of a good or service.

Substitution Effect

the component of the total effect of a price change on consumption that results from the consumer substituting the good that has become relatively cheaper for the good that has become relatively more expensive.

Leisure Time

Leisure time is the period when one is not engaged in work or other obligations, available for relaxation, hobbies, and personal activities.