A contingency was evaluated at year-end.Management felt it was probable that this would become an actual liability and the amount could be reasonably estimated.If this was not reported on the balance sheet or in the notes to the financial statements,what is the effect 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

The liabilities on the balance sheet would be understated because a probable and estimable contingency should be recognized as a liability.

A Contingency Was Evaluated at Year-End