A certain contingent liability was evaluated at year- end, and considered to have a remote possibility of becoming an actual liability. If the accountant decided NOT to report it on the balance sheet or in the notes to the financial statement, what effect would this have on the financial reporting of the company?
A)There would be no effect.
B)The net profit of the company would be understated.
C)The liabilities on the balance sheet would be understated.
D)The information about the transaction would be inadequately disclosed in the notes.

Question

Quizplus · Accepted Answer

Contingent liabilities that are considered remote do not need to be reported on the balance sheet or in the notes, so there would be no effect on financial reporting.

A Certain Contingent Liability Was Evaluated at Year- End, and Considered