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:

Biologically Significant

Pertaining to factors or impact of considerable importance for biological processes or survival.

Successive Approximations

A technique in behavior therapy and training that rewards behaviors that progressively get closer to the desired behavior.

Reinforcing

In the context of behavior, this term refers to the process of encouraging or establishing a pattern of behavior by providing a reward or consequence.

Extinction

The process by which a species, genus, or family ceases to exist.