Failure to Prepare an Adjusting Entry at the End of a Period

question 64

Multiple Choice

Failure to prepare an adjusting entry at the end of a period to record an accrued revenue would cause

• A) net income to be overstated.
• B) an understatement of assets and an understatement of revenues.
• C) an understatement of revenues and an understatement of liabilities.
• D) an understatement of revenues and an overstatement of liabilities.

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Definitions:

Maturity at Issue

The predetermined date when a financial instrument, such as a bond, will come due and the principal is to be paid back to investors.

Default Risk

The potential risk that an issuer of a bond or other debt security will be unable to make principal and interest payments when due.

Collateral Trust Bond

A type of bond that is secured by a pledge of collateral, typically securities, placed under the trust of a third party.

Securities

Financial instruments representing ownership (stocks), a debt agreement (bonds), or rights to ownership (derivatives) that can be bought and sold in financial markets.