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 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 a contingent liability is reasonably possible, it should be disclosed in the notes to the financial statements. Not reporting it would result in inadequate disclosure.

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