What Is the Effect on the Financial Statements When a Company

question 44

Multiple Choice

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

• A)Net income is overstated and assets are overstated.
• B)Expenses are understated and liabilities are understated.
• C)Expenses are understated and stockholders' equity is understated.
• D)Net income is overstated and liabilities are overstateD.Failure to accrue interest expense results in expenses being understated and the resulting interest payable is not increased to reflect the obligation to pay this expense.

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Definitions:

Sinking Fund

A fund established by a company to set aside revenue over time for the purpose of paying off debt, replacing assets, or cover future expenses.

Bond Issue

The process by which a government or corporation raises funds by selling bonds to investors.

Periodic Payments

Payments made or received regularly over a set period of time, often in context with loans or annuities.

DBRS

DBRS is a globally recognized credit rating agency that provides independent assessments of the creditworthiness of companies and sovereign entities.