In: Finance
Which one of the following would be considered a contingent liability? One Answer
A. A company owes $12,000 on inventories purchased on credit.
B. A company estimates that it will most likely have to pay $15,000 to the EPA for a chemical spill.
C. A company has access to a line of credit with a bank in the amount of $23,000.
D. A company believes that it might lose a lawsuit and damages could be $13,000.
E. None of the above
Ans B. A company estimates that it will most likely have to pay $15,000 to the EPA for a chemical spill.
For a liability to be considered a contingent liability the amount must be estimated and must be probable.