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What does Company ABC recognize as a liability and an expense?

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

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