A Company Failed to Make an Accrual Adjustment for Interest

question 4

Multiple Choice

A company failed to make an accrual adjustment for interest owed on a short-term bank loan.Which of the following statements is true about how this will affect the financial ratios?

• A)Net profit margin ratio will be understated and debt-to-assets ratio will be overstated.
• B)Net profit margin ratio and debt-to-assets ratios will be unaffected.
• C)Net profit margin ratio will be overstated and debt-to-assets ratio will be understated.
• D)Net profit margin ratio will be unaffected and debt-to-assets ratio will be overstated.

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Definitions:

Fourteenth Amendment

An amendment to the U.S. Constitution that grants citizenship to all persons born or naturalized in the United States and ensures equal protection under the law.

Due Process Clause

A legal principle that guarantees fair treatment through the normal judicial system, especially as a citizen's entitlement.

Equal Protection

The principle under the Constitution that requires states to govern impartially, not discriminating between different groups of people.

Lemon v. Kurtzman

A 1971 U.S. Supreme Court case that established the Lemon Test for determining the constitutionality of state laws regarding church and state separation.