An Entity Is Currently Under Investigation for Providing Defective Products

question 51

Multiple Choice

An entity is currently under investigation for providing defective products to their customers.If found guilty,the entity may be required to compensate their customers for approximately $500 000.The court case is still pending and the outcome will not be known until later in the next financial year.For the current financial year,the amount of $500,000 will be:

• A) recognised in the balance sheet as an asset.
• B) recognised in the balance sheet as a liability.
• C) recognised in the balance sheet as a contingent liability.
• D) disclosed in the notes to the financial statements as a contingent liability.

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Definitions:

Pleasant Stimulus

Any event, object, or situation that causes a positive emotional response.

Unpleasant Stimulus

refers to any object, event, or situation that is undesirable or causes discomfort, leading to avoidance behavior in individuals.

Removal

The act of taking something away or eliminating it from a particular location or situation.

Variable-interval Schedule

A schedule used in operant conditioning where a reward is given for a response at random time intervals.