Which of the Following Is the Proper Treatment for a Contingency

question 78

Multiple Choice

Which of the following is the proper treatment for a contingency that is probable but the exact amount of which is not known? The amount can be estimated.

• A) The liability should be doubled following conservatism.
• B) 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:

Prepaid Freight Costs

Expenses paid in advance for the transportation of goods.

Purchases Discount

A reduction in the price paid for goods and services if payment is made within a certain period, often used to encourage early payment.

Cash Discounts

A reduction in the invoice amount by a seller to encourage early payment from the buyer, usually within a specified time frame.

Periodic Inventory

An inventory system where stock levels are checked and updated at regular, specified intervals.