Question

Which of the following scenarios indicates a contingent liability?

Options

• Payment of utility bills.

• Lawsuit filed against the business, pending a court decision.

• Salaries payable to employees.

• Purchase of inventory on credit.

Answer 1

Lawsuit filed against the business, pending a court decision.

Explanation:

A contingent liability is a potential obligation that may arise depending on the outcome of a future uncertain event, like a pending court case.