What Situation Represents a Contingent Liability for a Company

question 9

Multiple Choice

What situation represents a contingent liability for a company?

• A)A candy company's monthly production requires 1000 kg of chocolate.The company entered into a contract with a chocolate producer to purchase 6000 kg of chocolate over the next six months at the market price.
• B)A bike company learned that a racer using its bike was seriously injured in an accident on December 30,2018,as the front wheel of the bike was released as the result of a manufacturing defect.The company had not received a claim at December 31,2018,but management expects to receive a claim.
• C)A restaurant received a $10 000 claim from a customer for emotional damages as a result of poor service.The legal counsel of the restaurant indicated that the claim was not supported and there was less than a 5% chance that the restaurant would have to pay.
• D)A hotel chain was found guilty by a judge for not refunding customers who had online reservations.The hotel chain will have to pay $50 000 to various customers in the following year.

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Definitions:

U.S. Buyers

Individuals or entities within the United States that purchase goods or services, either domestically or from international markets.

Demand for British Pounds

The desire or need by individuals, businesses, or countries to purchase or hold British currency for the purpose of investment or transactions.

Currency Market

A global market where currencies are traded against each other, determining their exchange rates.

Appreciation

An increase in the value of an asset over time, which can be influenced by factors like demand, inflation, and currency value changes.