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:

Hair Follicle

Invagination of the epidermis into the dermis; contains the root of the hair and receives the ducts of sebaceous and apocrine glands.

Sebaceous Glands

Small oil-producing glands in the skin that secrete sebum into hair follicles to lubricate the skin and hair.

Adipose Tissue

A type of connective tissue that stores energy in the form of fat, provides insulation, and supports and protects organs.

Subcutaneous Layer

The layer of tissue directly under the skin, composed of fat and connective tissues that insulate and protect the body.