Which of the following is a contingency that should be accrued?
A) The company is being sued and a loss is reasonably possible and reasonably estimable.
B) The company deducts life insurance premiums from employees' paychecks.
C) The company offers a two-year warranty and the expenses can be reasonably estimated.
D) It is probable that the company will receive $100,000 in settlement of a lawsuit.

Question

Quizplus · Accepted Answer

Contingencies that should be accrued are those where a loss is probable and the amount can be reasonably estimated. Offering a two-year warranty with reasonably estimable expenses fits this criterion, as the company can anticipate future expenses related to warranty claims and should record a liability and expense for these future costs.

Which of the Following Is a Contingency That Should Be