A Contingency Was Evaluated at Year-End

question 6

Multiple Choice

A contingency was evaluated at year-end.Management felt it was probable that this would become an actual liability and the amount could be reasonably estimated.If this was not reported on the balance sheet or 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:

Scatterplot

A graphical representation using dots to show the relationship or correlation between two variables.

Perfect Correlation

A relationship between two variables where one variable can be perfectly predicted from the other.

Correlation Coefficient

A numerical measure that indicates the strength and direction of a linear relationship between two quantitative variables.

Least Squares Line

A straight line that minimizes the sum of the squares of the differences between the observed and predicted values.