Which one of the following would be considered a contingent liability?
A) A company estimates that it will probably have to pay $75,000 to the EPA for a chemical spill.
B) A company owes $35,000 on inventories purchased on credit.
C) A company has access to a line of credit with a bank in the amount of $120,000.
D) A company believes that it is reasonably possible it will lose a lawsuit and damages could be $100,000.
E) None of the above

Question

Quizplus · Accepted Answer

A contingent liability is a potential obligation that may be incurred depending on the outcome of a future event. In option A, the company estimates a probable payment for a chemical spill, which fits the definition of a contingent liability.

Which One of the Following Would Be Considered a Contingent