What Is the Effect on the Financial Statements When a Company

question 97

Multiple Choice

What is the effect on the financial statements when a company fails to adjust the prepaid insurance account at year-end for insurance coverage which has expired?

• A)Net income is overstated and stockholders' equity is understated.
• B)Expenses are understated and stockholders' equity is understated.
• C)Expenses are understated and net income is understated.
• D)Net income is overstated and assets are overstated.

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Definitions:

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Interstitial Fluid

The fluid that surrounds cells in tissues, providing a medium for the exchange of substances between blood and cells.

Photomicrograph

A photograph taken through a microscope to show a magnified image of a sample.

Red Pulp

A tissue in the spleen composed of blood-filled sinuses and splenic cords, involved in filtering blood and removing aged or damaged red blood cells.