Existing claims related to product warranties and litigation as of December 31, 2010, indicate that it is probable that a liability has been incurred.However, as of December 31, 2010, the exact amount of the obligation cannot be reasonably estimated, but a range of possible amounts has been determined.Based on these facts, an estimated loss contingency should be
A)accrued
B)disclosed but not accrued
C)neither accrued nor disclosed
D)classified as an appropriation of retained earnings

Question

Quizplus · Accepted Answer

When a loss contingency is probable and the amount can be reasonably estimated, it should be accrued. In this case, since a range of possible amounts has been determined, it is considered reasonably estimable, and therefore, the loss contingency should be accrued.

Existing Claims Related to Product Warranties and Litigation as of December