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:

Brachialis

A muscle in the upper arm that flexes the elbow joint.

Rectus Abdominis

A long muscle in the front of the abdomen that assists in breathing and stabilizes the core during movements.

External Oblique

A muscle in the abdomen that forms part of the abdominal wall, helping in the rotation and lateral flexion of the trunk.