A certain contingent liability was evaluated at year-end; the company felt it was probable that it would become an actual liability,and the amount could be reasonably estimated.If the accountant decided NOT to report it on the balance sheet or in the notes to the financial statement,what effect would it have 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.

Question

Quizplus · Accepted Answer

If the accountant decided not to report the contingent liability, the liabilities on the balance sheet would be understated. This means that the financial reporting would not accurately reflect the company's financial obligations, which could mislead investors and other stakeholders.

A Certain Contingent Liability Was Evaluated at Year-End; the Company