Which of the following situations is NOT considered a contingent liability?

• A. A company has an outstanding loan payable due in 12 months.
• B. A company is under investigation for possible environmental violations.
• C. A company has signed a guarantee for a loan taken by another entity.
• D. A company is being sued, and the outcome is uncertain.

Answer: (A)

Verified step by step guidance

1. Step 1: Understand the concept of contingent liabilities. Contingent liabilities are potential obligations that may arise depending on the outcome of a future event. They are not recorded as liabilities unless the event is probable and the amount can be reasonably estimated.
2. Step 2: Analyze each situation provided in the problem to determine whether it qualifies as a contingent liability. For example, being under investigation for environmental violations or being sued with an uncertain outcome are contingent liabilities because they depend on future events.
3. Step 3: Evaluate the situation where a company has signed a guarantee for a loan taken by another entity. This is also considered a contingent liability because the company may be required to fulfill the guarantee if the other entity defaults.
4. Step 4: Examine the situation where a company has an outstanding loan payable due in 12 months. This is NOT a contingent liability because it is a definite obligation that is already recorded as a liability on the company's balance sheet.
5. Step 5: Conclude that the situation involving the outstanding loan payable due in 12 months is the correct answer to the question, as it does not meet the criteria for a contingent liability.