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 that, if material, may be disclosed in a footnote. The actual number of albums to be produced is not yet determined, and there is no certainty that all of the albums will be completed. Therefore, it does not meet the criteria of a contingent liability that should be recorded in the accounting records or a contingent liability requiring footnote disclosure. It is also not an estimated liability since the price per album is clearly stated in the contract.

The Music House Issues a Contract to a New Recording