Multiple Choice
When a bank is required to hold more money in reserve, which of the following is most likely to occur?
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9. Current Liabilities
Types of Liabilities
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Which type of liability is most likely to be insurable?
A
Accrued expenses
B
Deferred tax liability
C
Contingent liability
D
Product liability
Verified step by step guidance1
Understand the concept of liability: A liability is an obligation that a company owes to another party, typically arising from past transactions or events.
Learn about the types of liabilities mentioned: Accrued expenses are obligations for expenses incurred but not yet paid, deferred tax liability arises from temporary differences between accounting and tax reporting, and contingent liability is a potential obligation dependent on the outcome of a future event.
Focus on contingent liability: Contingent liabilities are uncertain and depend on future events, such as lawsuits or product defects. They are disclosed in financial statements if the likelihood of occurrence is probable and the amount can be reasonably estimated.
Understand product liability: Product liability is a type of contingent liability that arises when a company may be held responsible for damages caused by its products. This liability is insurable because insurance companies offer coverage for risks associated with product defects or harm caused to consumers.
Conclude why product liability is insurable: Insurance companies can assess the risk associated with product liability and provide coverage to mitigate financial losses for the company. This makes product liability the most likely type of liability to be insurable among the options provided.
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