At the End of the Current Year, a Company Failed

question 115

Multiple Choice

At the end of the current year, a company failed to accrue interest of $500,000 on its investments in municipal bonds. Its tax rate is 30%. As a result of this error, net income is:

• A) Unaffected.
• B) Understated by $350,000.
• C) Understated by $500,000.
• D) Understated by $150,000.

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Definitions:

Additional Investment

Funds invested into a company or assets beyond the initial expenditure, often to support growth, cover operational costs, or finance new projects.

Ending Balances

The final amount in an account at the end of an accounting period, after all transactions have been accounted for, which becomes the beginning balance for the next period.

Capital Deficiency

A situation where a company's total capital is less than the par value of its capital stock.

Noncash Assets

Items of value owned by a business or individual that are not in the form of cash, such as real estate, equipment, and patents.