Question

Hawley Corporation issues one-year limited warranties with all of their products. Based on their past history with warranties, they report a potential liability of 8% of their cost of goods sold on their financial statements. This is an example of reporting a(n):___________

Answer 1

Answer: Contingency

Step-by-step explanation: In simple words, contingency refers to the event that may or may not happen in the future and depends on certain circumstances.

These are usually the misshapen or potential threats that the organisation may face in the future, so the management tries to make advance funds and report for contingent liabilities so they can tackle the problem effectively.

In the given case, Hawley corporation reported liabilities in their balance sheet for the events that may or may not occur in the future. Hence we can conclude that they reported contingency.