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

question 152

True/False

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 statements, this could be considered a violation of generally accepted accounting principles.

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Definitions:

Interest Rate Price Risk

The risk of losses in the values of financial instruments due to fluctuations in interest rates.

Original Maturity

This refers to the duration from the issuance of a bond or other fixed-income security until its due date.

Default Risk

The risk that a borrower fails to make the required payments on their debt obligation.

Canada Call Feature

A special feature on certain bonds that allows the issuer to redeem the bond before maturity in the Canadian market.