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

question 38

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)The liabilities on the balance sheet would be understated.
• C)There would be no effect.
• D)The net profit of the company would be understated.

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Definitions:

Federal Funds Rate

The interest rate at which depository institutions lend reserve balances to other depository institutions overnight.

Price Stability

An economic condition in which prices remain largely stable, without rapid inflation or deflation.

Maximum Employment

A situation in which all available labor resources are being used in the most economically efficient way, one of the goals of economic policy.

Quantity Theory of Money

This economic theory posits that the general price level of goods and services is directly proportional to the amount of money in circulation.