A Corporation Has Been Sued for Product Failures Allegedly Resulting

question 94

Multiple Choice

A corporation has been sued for product failures allegedly resulting in injuries to the individuals bringing the lawsuit.The company's lawyers believe it is more than remote,but less than probable,that the lawsuit will result in an actual liability.Which of the following actions should be taken by the company's management?

• A)The liability should be estimated and recorded as an expense.
• B)The situation should be described in a note to the financial statements.
• C)The possible liability should be ignored.
• D)Management should consider resigning.

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Definitions:

Cash Sales

Transactions where payment is made immediately in cash at the time of sale.

Cash Payments Journal

A ledger book or digital record maintaining details of all cash payments made by a business.

Accounting Information System

A system of collecting, storing, and processing financial and accounting data that is used by decision-makers.

Cost Awareness

The consideration and understanding of the costs associated with conducting business and the impact on financial performance.