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

question 24

Multiple Choice

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 net profit of the company would be understated.
• C)The liabilities on the balance sheet would be understated.
• D)The information about the transaction would be inadequately disclosed in the notes.

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Definitions:

Inferior Good

A good, such as used clothes, for which demand decreases, or shifts leftward, as consumer income rises.

Potatoes

A starchy tuber vegetable grown and consumed worldwide, serving as a staple food in many cultures.

Demand Curve

A graphical representation of the relationship between the price of a good and the quantity demanded by consumers.

Personal Computers

Computing devices designed for individual use, as opposed to computers intended for shared or organizational usage.