Outstanding wages
Declared dividend
Liability on bills discounted
Prepaid salary
Answer is Right!
Answer is Wrong!
The correct answer is A. Outstanding wages.
A contingent liability is a potential liability that depends on the outcome of a future event. Outstanding wages are a type of contingent liability because they are owed to employees but have not yet been paid. If the employees sue the company for unpaid wages, the company would be liable to pay them.
Declared dividends are not contingent liabilities because they are already owed to shareholders. Liability on bills discounted is not a contingent liability because the company is already obligated to pay the bills. Prepaid salary is not a contingent liability because the company has already paid the salary.
Here is a more detailed explanation of each option:
- Outstanding wages are wages that have been earned by employees but have not yet been paid. They are a type of contingent liability because they are owed to employees but the company may not have to pay them if the employees do not sue the company.
- Declared dividends are dividends that have been approved by the board of directors but have not yet been paid to shareholders. They are not contingent liabilities because the company is already obligated to pay the dividends.
- Liability on bills discounted is a liability that arises when a company borrows money by discounting a bill of exchange. The company is obligated to pay the bill of exchange when it matures, even if the company goes bankrupt. Therefore, liability on bills discounted is not a contingent liability.
- Prepaid salary is salary that has been paid to employees but has not yet been earned. It is not a contingent liability because the company has already paid the salary.