A probable loss contingency is reasonably estimated within a range of possible amounts.No amount within the range is a better estimate than any other amount within the range.The amount that should be accrued should be
A)zero
B)the lower amount of the range
C)the upper amount of the range
D)the average amount within the range

Question

Quizplus · Accepted Answer

When a probable loss contingency is reasonably estimated within a range of possible amounts, the lower amount of the range is the best estimate for accruing the liability. This is because it is preferable to plan for contingencies with a higher degree of certainty, and the lower amount is more certain than the upper amount or any amount within the range. Choosing the upper end of the range could result in overestimating the liability and overstating the financial statements. Choosing the average amount within the range could also result in overestimating or underestimating the liability.

A Probable Loss Contingency Is Reasonably Estimated Within a Range