The profit-sharing plan of Company ABC requires the company pay a specified proportion of its profit for the year to employees who serve throughout the year. If no employees leave during the year, the total profit-sharing payments for the year will be 3% of profit. The company estimates that staff turnover will reduce the payments to 2.5% of profit.
What does Company ABC recognize as a liability and an expense?
A . 0.5% of profit
B . 2.5% of profit
C . 3% of profit
D . 5.5% of profit
Answer: B