Quibble Company's Liabilities Exceed Its Assets

question 40

Multiple Choice

Quibble Company's liabilities exceed its assets.Quibble hires Roo & Slay,an accounting firm,to prepare a balance sheet.Through Roo & Slay's negligent omissions,the sheet shows a net worth.Town Bank re?lies on the balance sheet to make a loan to Quibble.When Quibble de?faults,Town files a suit against Roo & Slay.Under the Restatement rule,Roo & Slay is most likely

• A)liable because Roo & Slay owed a duty of care to Quibble.
• B)liable because Roo & Slay owed a duty to any foreseeable user.
• C)liable if Roo & Slay knew that Town would rely on the balance sheet.
• D)not liable because Roo & Slay and Town were not in privity.

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Definitions:

Audit

A systematic review and assessment of financial records or business processes to ensure accuracy and compliance with regulations and standards.

Accumulated Depreciation

The total amount of depreciation expense that has been recorded against a fixed asset over its useful life to date.

Fair Value

An estimate of the market value of an asset or liability, based on the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.

Journal Entry

A record in accounting that documents a business transaction in the general ledger, indicating debits and credits to specific accounts.