Which of the following is NOT a liability that must be estimated?

• A. Accounts Payable
• B. Contingent Liability
• C. Pension Obligation
• D. Warranty Liability

Answer: (A)

Verified step by step guidance

1. Understand the concept of liabilities: A liability is an obligation that a company owes to external parties, typically arising from past transactions or events. Some liabilities require estimation because their exact amounts are not known at the time of recording.
2. Review the types of liabilities listed in the problem: Accounts Payable, Contingent Liability, Pension Obligation, and Warranty Liability. Determine which of these requires estimation and which does not.
3. Analyze Accounts Payable: Accounts Payable represents amounts owed to suppliers for goods or services received. These amounts are typically known and do not require estimation, as they are based on invoices or agreed-upon terms.
4. Examine Contingent Liability, Pension Obligation, and Warranty Liability: These liabilities often require estimation because their exact amounts depend on future events, actuarial calculations, or usage patterns. For example, Warranty Liability depends on the likelihood of product defects and repair costs.
5. Conclude that Accounts Payable is NOT a liability that must be estimated, as its amount is definite and based on existing invoices or agreements, unlike the other liabilities listed.