Information available prior to the issuance of the financial statements indicates that it is probable that, at the date of the financial statements, a liability has been incurred for obligations related to product warranties. The amount of the loss involved can be reasonably estimated. Based on the above facts, an estimated loss contingency should be
A) accrued.
B) disclosed but not accrued.
C) neither accrued nor disclosed.
D) classified as an appropriation of retained earnings.

Question

Quizplus · Accepted Answer

According to accounting principles, when a loss is probable and the amount can be reasonably estimated, the loss contingency should be accrued. This means the estimated loss from product warranties should be recorded in the financial statements.

Information Available Prior to the Issuance of the Financial Statements