Which of the Following Is an Example of a Contingent

question 166

Multiple Choice

Which of the following is an example of a contingent liability?

• A) A liability for notes payable with interest included in the face amount.
• B) The liability for future warranty repairs on computers sold during the current period.
• C) A lawsuit pending against a restaurant chain for improper preparation of food.
• D) A corporate long-term employment contract with the chief executive officer.

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Definitions:

Divest

The process of selling off subsidiary business interests or investments as a strategic move for a company.

Newly Merged Firm

A company that has recently combined with another entity in a merger, pooling their resources, operations, and strategies to form a single, larger organization.

Economies of Scale

The cost advantages that enterprises obtain due to their scale of operation, with cost per unit of output generally decreasing with increasing scale.

Synergistic Gains

The enhanced value created by the combination of two or more companies or assets, beyond what they could achieve independently.