A contingency was evaluated at year-end and considered to have a remote possibility of becoming an actual liability.If this was not reported on the balance sheet or in the notes to the financial statements,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

Contingencies that are considered to have a remote possibility of becoming actual liabilities are not required to be reported on the balance sheet or in the notes to the financial statements according to accounting standards. Therefore, not reporting such a contingency would have no effect on the financial reporting of the company.

A Contingency Was Evaluated at Year-End and Considered to Have