Star Company Has a Contingent Liability That Has a Likelihood

question 35

Multiple Choice

Star Company has a contingent liability that has a likelihood of actual occurrence that is classified as probable. Also, the amount of the liability can be reasonably estimated. Under these circumstances, Star is required to

• A)recognize a liability only.
• B)recognize an expense only.
• C)recognize a liability and an expense in its financial statements.
• D)disclose but not recognize the liability or the expense.

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Definitions:

Cost Budgeted

An estimate of costs for a project or business over a specific period, forming the basis for financial planning and performance measurement.

Activity Pool

A way to assign costs in cost accounting, grouping all the cost inputs associated with a specific activity.

Estimated Activity Base

A projection of the level or volume of activity used in activity-based costing for allocating indirect costs.

ABC Product Costing System

Activity-Based Costing (ABC) is a method that assigns overhead and indirect costs to related products and services based on the activities that drive costs.