What Situation Represents a Contingent Liability for a Company

question 6

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 30th, 2015, 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 31st, 2015, 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:

Industrial Distributor

An entity engaged in the wholesale distribution of industrial products to businesses and professional users.

Marketing Channel Functions

The various roles and activities performed by the intermediaries within the marketing channel, including distribution, logistics, and facilitating transactions.

Stocking

The process of replenishing goods in a store or warehouse to ensure sufficient supply for consumer demand.

Indirect Channel

A distribution method that involves intermediaries or middlemen to get the product from the manufacturer to the consumer.