A Certain Contingent Liability Was Evaluated at Year-End;the Company Felt

question 34

Multiple Choice

A certain contingent liability was evaluated at year-end;the company felt it was probable that it would become an actual liability,and the amount could be reasonably estimated.If the accountant decided NOT to report it on the balance sheet or in the notes to the financial statement,what effect would it have on the financial reporting of the company?

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

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Definitions:

Cash Surpluses

Excess funds that a business possesses after it has paid all expenses and liabilities, which can be used for investment, paying down debt, or other purposes.

Disbursement Float

The interval when funds are disbursed from a payer's account until the payee's bank credits the amount.

Ledger Float

The time difference between when a check is written and when it is actually deducted from the payer's account.

Collection Float

The time period between when a check is deposited into a bank account and when the funds are available.