What Is the Effect on the Financial Statements When a Company

question 68

Multiple Choice

What is the effect on the financial statements when a company fails to accrue salaries expense at year-end?

• A) Net income is overstated and liabilities are understated.
• B) Expenses are understated and stockholders' equity is understated.
• C)Expenses and liabilities are both overstated.
• D)Net income is overstated and liabilities are properly reporteD.Salary expenses that are not accrued result in expenses and liabilities being under-stated. Understated expenses result in overstated net income.

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Definitions:

Absolute Advantage

A country's ability to produce a good more efficiently than other countries, requiring fewer resources for the same output.

Autarky

National self-sufficiency; no economic interaction with foreigners.

Opportunity Cost

The value of the best alternative that is forgone in making any choice or decision.

Terms of Trade

The ratio between a country's export prices and its import prices, indicating the quantity of imports goods a country can purchase through the sale of its exports.