The Music House issues a contract to a new recording artist to produce a number of albums over the next five years at $1 million per album. This situation is an example of:

Question

Quizplus · Accepted Answer

The contract with the recording artist represents a commitment, which may be disclosed in a footnote if it is material. It is not a contingent liability because the company has already made a legal commitment to produce the albums, and the terms and amount of the liability are already known. It is also not a provision because the number of albums is determined in the contract. Therefore, the best answer is D.

The Music House Issues a Contract to a New Recording