A Contingency Was Evaluated at Year-End and Considered to Have

question 116

Multiple Choice

A contingency was evaluated at year-end and considered to have a reasonable possibility of becoming an actual liability.If this was not reported in the notes to the financial statements,what is the effect 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:

Stanley Milgram

A social psychologist known for his research on obedience, demonstrating how people are willing to follow orders given by authority figures, even to the extent of harming others.

Shock Studies

Research experiments that involve delivering electrical shocks to subjects to understand behavior and learning.

Obedience

Obedience is a form of social influence where an individual acts in response to a direct order from another individual, who is usually an authority figure.

Conformity

The act of matching attitudes, beliefs, and behaviors to what is considered the norm or standard in a group.