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

question 60

Multiple Choice

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 statement, what effect would this 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:

Unipolar Depression

A mood disorder featuring consistent low mood, lack of interest in activities, and other depressive symptoms without episodes of mania.

Rapid Cycling

In the context of bipolar disorder, a pattern of four or more mood episode changes within a year.

Mania

A state of abnormally elevated or irritable mood, arousal, and/or energy levels, often seen in bipolar disorder, that can impair functioning.

Sociocultural Factors

Elements that influence an individual's behavior and attitudes based on the culture and society in which they live.