Alamo Autoworks, Inc

Multiple Choice

Alamo Autoworks, Inc. is involved in a lawsuit. Their lawyers state that it is probable that the jury will find in favour of the plaintiff and Alamo will owe two million dollars. Even though the lawsuit is not yet settled, Alamo should record a liability in the statement of financial position as which of the following?

A) A prepaid expense
B) A loss
C) Deferred revenue
D) A contra-asset