Contingency MCQs

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A liability arising from a loss contingency should be recorded if the






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Which one of the following loss contingencies would be accrued as a liability rather than disclosed in the notes to the financial statement?






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Linden Corporation is a defendant in a lawsuit where the plaintiff is seeking $1,000,000 in damages. The company had terminated the plaintiff, George...






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Ichabod Company is the plaintiff in two lawsuits. The first suit involves a competitor who has made an exact copy of one of Ichabods products, and I...






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Warren Company is being sued in a wrongful discharge suit for $500,000. The company attorney has advised Warren that the probability of the plaintiff...






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In May Year 1, Caso Co. filed suit against Wayne, Inc., seeking $1.9 million in damages for patent infringement. A court verdict in November Year 4 aw...






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In May Year 1, Caso Co. filed suit against Wayne, Inc., seeking $1.9 million in damages for patent infringement. A court verdict in November Year 4 aw...






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On January 17, year 2, an explosion occurred at a Sims Co. plant causing extensive property damage to area buildings. Although no claims had yet bee...






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Brite Corp. had the following liabilities at December 31, year 2: Accounts payable $55,000 Unsecured notes, 8%, due 7/1/Y3 400,000 Accrued expense...






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On February 5, year 3, an employee filed a $2,000,000 lawsuit against Steel Co. for damages suffered when one of Steels plants exploded on December...






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On November 5, year 2, a Dunn Corp. truck was in an accident with an auto driven by Bell. Dunn received notice on January 12, year 3, of a lawsuit f...






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During year 2, Haft Co. became involved in a tax dispute with the IRS. At December 31, year 2, Hafts tax advisor believed that an unfavorable outco...






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Management can estimate the amount of loss that will occur if a foreign government expropriates some company assets. If expropriation is reasonably ...






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Invern, Inc. has a self-insurance plan. Each year, retained earnings is appropriated for contingencies in an amount equal to insurance premiums save...






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In year 1, a personal injury lawsuit was brought against Halsey Co. Based on counsels estimate, Halsey reported a $50,000 liability in its December...






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During January year 2, Haze Corp. won a litigation award for $15,000 that was tripled to $45,000 to include punitive damages. The defendant, who is ...






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In May year 1 Caso Co. filed suit against Wayne, Inc. seeking $1,900,000 damages for patent infringement. A court verdict in November year 5 awarded...






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During year 2, Smith Co. filed suit against West, Inc. seeking damages for patent infringement. At December 31, year 2, Smiths legal counsel believ...






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In year 2, a contract dispute between Dollis Co. and Brooks Co. was submitted to binding arbitration. In year 2, each partys attorney indicated pri...






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Eagle Co. has cosigned the mortgage note on the home of its president, guaranteeing the indebtedness in the event that the president should default....






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North Corp. has an employee benefit plan for compensated absences that gives employees 10 paid vacation days and 10 paid sick days. Both vacation an...






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Ross Co. pays all salaried employees on a Monday for the five-day workweek ended the previous Friday. The last payroll recorded for the year ended D...






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At December 31, year 2, Taos Co. estimates that its employees have earned vacation pay of $100,000. Employees will receive their vacation pay in yea...






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If the payment of employees compensation for future absences is probable, the amount can be reasonably estimated, and the obligation relates to rig...






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Vadis Co. sells appliances that include a three-year warranty. Service calls under the warranty are performed by an independent mechanic under a con...






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Lute Corporation sells furnaces that include a three-year warranty. Lute can contract with a third party to provide these warranty services. Lute el...






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Case Cereal Co. frequently distributes coupons to promote new products. On October 1, year 2, Case mailed 1,000,000 coupons for $.45 off each box of...






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Chemrite Inc. reported a total asset retirement obligation of $350,000 in last year’s balance sheet. This year, Chemrite acquired a new chemical m...






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Chemrite Inc. reported a total asset retirement obligation of $350,000 in last year’s balance sheet. This year, Chemrite acquired a new chemical m...






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Under IFRS, a contingency is described as






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A controller became aware that a competitor appeared to have access to the company’s pricing information. The internal auditor determined that the ...






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Management’s enthusiasm for computer security seems to vary with changes in the environment, particularly with occurrence of the other computer dis...






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Each day after all processing is finished, a bank performs a backup of its online deposit files and retains it for 7 days. Copies of each day’s tra...