The economic essence of one of the following should not be reported in the balance sheet as a current liability. Which one is not reported?
A)Free sandwich offers printed on hockey ticket stubs
B)Amounts sued for damages associated with injuries from an allegedly defective weed eater
C)Mail-in rebates from software by software companies
D)Amounts payable to an employee for a recent expense report

Question

Quizplus · Accepted Answer

The economic essence of amounts sued for damages (choice B) should not be reported in the balance sheet as a current liability because it is contingent upon the outcome of a lawsuit, which is uncertain. Current liabilities are obligations the company expects to pay within one year or one operating cycle, whichever is longer, and must be both probable and reasonably estimable. Since the outcome of the lawsuit and the associated liability is uncertain, it does not meet the criteria for recognition as a current liability until it becomes more certain.

The Economic Essence of One of the Following Should Not