A certain contingent liability was evaluated at year- end; the company felt it was probable that it would become an actual liability, and the amount could be reasonably estimated. If the accountant decided NOT to report it on the balance sheet or in the notes to the financial statement, what effect would it have on the financial reporting of the company?
A)There would be no effect.
B)The liabilities on the balance sheet would be understated.
C)The net profit of the company would be understated.
D)The information about the transaction would be inadequately disclosed in the notes.

Question

Quizplus · Accepted Answer

If a contingent liability is probable and can be reasonably estimated, it should be recorded as a liability on the balance sheet. Not reporting it would understate the liabilities.

A Certain Contingent Liability Was Evaluated at Year- End; the Company