For each item numbered below, select the appropriate effect on liabilities listed in a through e that each transaction describes.You may use each letter more than once or not at all.In some cases, two effects are correct.
-In a lawsuit filed against the firm, counsel indicates that the potential $10,000 loss is highly probable.
A) Decrease current liabilities
B) Increase current liabilities
C) No effect on recorded current liabilities
D) Accrued contingent liability
E) Contingent liability disclosed in the notes only

Question

Quizplus · Accepted Answer

The potential loss from a lawsuit that is considered highly probable would lead to an increase in current liabilities as the firm would record this as an accrued contingent liability. This means the firm expects to owe this amount, thus increasing its liabilities and specifically accruing it due to the probable nature of the loss.

For Each Item Numbered Below, Select the Appropriate Effect on Liabilities