In Accounting for a Contingent Liability, If the Likelihood of the Obligation

question 101

Multiple Choice

In accounting for a contingent liability, if the likelihood of the obligation is probable and the amount can be estimated, a company must

• A) report the liability on the balance sheet.
• B) provide disclosure in the footnotes to the financial statements.
• C) not recognize the liability until it is certain and the exact amount is known.
• D) do nothing.

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Definitions:

Output Increase

Refers to a rise in the quantity of goods or services produced by an individual, company, or economy over a given period.

Economies of Scale

The decrease in unit cost that results from enhanced scale of operations, highlighting how companies can save on costs per unit by expanding their production scope.

Inelastic Portion

A segment of the demand curve where consumers are relatively unresponsive to changes in price, meaning demand does not significantly decrease as the price increases.

Revenue Maximizer

Describes a strategy or approach focused on increasing the total revenue received, regardless of profits or costs.