A certain contingent liability was evaluated at year-end,and considered to have a reasonable possibility of becoming an actual liability.If the accountant decided NOT to report it on the balance sheet or in the notes to the financial statement,what effect would this have on the financial reporting of the company?
A)The information about the transaction would be inadequately disclosed in the notes.
B)The liabilities on the balance sheet would be understated.
C)There would be no effect.
D)The net profit of the company would be understated.

Question

Quizplus · Accepted Answer

The information about the contingent liability would be inadequately disclosed in the notes, as it should be disclosed if there is a reasonable possibility of it becoming an actual liability.

A Certain Contingent Liability Was Evaluated at Year-End,and Considered to Have