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)The information about the transaction would be inadequately disclosed in the notes.
B)The net profit of the company would be understated.
C)The liabilities on the balance sheet would be understated.
D)There would be no effect.

Question

Quizplus · Accepted Answer

Failing to report a probable and estimable contingent liability on the balance sheet or in the notes would result in an understatement of liabilities on the balance sheet. This, in turn, would result in an overstatement of equity or an understatement of net loss.

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