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

question 62

Multiple Choice

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 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)The information about the transaction would be inadequately disclosed in the notes.
• B)There would be no effect.
• C)The liabilities on the balance sheet would be understated.
• D)The net profit of the company would be understated.

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Definitions:

Lung Recoil

Decrease in the size of an expanded lung as a result of a decrease in the size (volume) of its alveoli; due to elastic recoil of elastic fibers surrounding alveoli and water surface tension of a thin film of water within alveoli.

Respiratory Muscles

The muscles involved in the process of breathing, including the diaphragm and intercostal muscles.

Inspiratory Reserve Volume

Maximum volume of air that can be inspired after a normal inspiration.

Forced Expiration

The act of expelling air from the lungs with effort beyond normal exhalation, often used in pulmonary testing.