Information Obtained Prior to the Issuance of the Current Period's

question 62

Multiple Choice

Information obtained prior to the issuance of the current period's financial statements of KG Company indicates that it is probable that,at the date of the financial statements,a liability will be incurred for obligations related to product warranties on products sold during the current period.During the past three years,product warranty costs have been approximately 1 1/2 percent of annual sales revenue.An estimated loss contingency should be:

• A) Neither accrued nor disclosed in the financial statements.
• B) Recognized as an appropriation of retained earnings.
• C) Accrued in the accounts and reported in the financial statements.
• D) Disclosed in the financial statements but not accrued.

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Definitions:

Break-even Point

The level of sales or production at which a business's revenues equal its expenses, resulting in no net profit or loss.

Variable Expenses

Costs that change in direct proportion to changes in the level of activity or volume of output produced.

Break-even Point

The break-even point is reached when the overall expenses match the total income, leading to no gains or losses.

Sales Mix

The combination of products or services that a company sells, impacting the overall profitability.