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

question 132

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) 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.

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Definitions:

Fair Trade

A social movement aimed at helping producers in developing countries achieve better trading conditions and to promote sustainability.

Trade Agreements

Formal arrangements between countries that determine the terms of trade, tariffs, and duties, aimed at facilitating smoother and more efficient international commerce.

Free Trade

An economic policy that allows imports and exports between countries with minimal governmental restrictions or tariffs.

ILO

The International Labour Organization, a United Nations agency that sets international labor standards and promotes rights at work.