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 decided not to report a contingent liability that has a remote possibility of becoming an actual liability, there would be no effect on the financial reporting of the company. This is because according to accounting standards, contingent liabilities that are remote do not need to be recognized on the balance sheet or disclosed in the notes to the financial statements. Therefore, choosing not to report it would not impact the company's financial reporting.

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