Which of the Following Is the Proper Treatment for a Liability

question 32

Multiple Choice

Which of the following is the proper treatment for a liability that exists,but the exact amount of which is not known?

• A) The liability should be treated as a contingent liability.
• B) The amount of the liability should be estimated and recorded.
• C) The liability should be ignored.
• D) The liability should be reported in the notes to the financial statements.

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Definitions:

Underapplied Overhead

Occurs when the allocated or applied overhead costs in the production process are less than the actual overhead costs incurred.

Manufacturing Overhead Account

An accounting category that records the indirect costs associated with producing goods, such as utilities for the factory or salaries for the maintenance staff.

Overapplied Manufacturing Overhead

A situation where the amount of manufacturing overhead allocated to products is more than the actual overhead incurred.

Work in Process

Inventory that includes all materials, labor, and overhead costs incurred for products that are in the production process but not yet completed.