Question

An obligation dependent upon an event that has not yet occurred is an example of a(n):

A. contingent liability.

B. estimated liability.

C. known liability.

D. accrued liability.

Answer 1

The correct answer to the student's question is A. contingent liability, which is a potential financial obligation that depends on a future event that may or may not occur.

Step-by-step explanation:

An obligation contingent upon an event that has not yet occurred is known as a contingent liability. This is because the liability depends on an uncertain future event that might happen, such as a lawsuit, warranty claim, or environmental clean-up costs. These are different from estimated liabilities, known liabilities, and accrued liabilities which are respectively liabilities where an estimate is needed for recording, already certain and measurable, and incurred liabilities which have not yet been paid or recorded. The answer to the student's question is therefore A. contingent liability.