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

question 116

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:

Quasi In Rem

A legal term referring to a court's jurisdiction over an individual's property to resolve a dispute, not directly against the person.

Excess Proceeds

The amount of money that remains after all debts, liabilities, and costs have been paid off in a transaction, often associated with auctions or foreclosures.

Neonates

Newborn babies, especially within the first month after birth.

Calming Effect

The process of inducing a state of relaxation and reduced stress in an individual.