A certain contingent liability was evaluated at year-end,and considered to have a remote 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) There would be no effect.
B) The liabilities on the balance sheet would be understated.
C) The information about the transaction would be inadequately disclosed in the notes.
D) The net income of the company would be understated.

Question

Quizplus · Accepted Answer

If the accountant determined that the contingency had a remote possibility of becoming an actual liability, then it is not necessary to report it on the balance sheet or in the notes to the financial statement. As a result, there would be no impact on the financial reporting of the company.

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