What Is the Effect on the Financial Statements When a Company

question 25

Multiple Choice

What is the effect on the financial statements when a company fails to adjust the unearned revenue account for revenues earned at year-end?

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

---

Definitions:

Unlevered Value

Unlevered value is the value of a company or investment assuming it has no debt financing, focusing solely on its equity value.

Tax Rate

The proportion of financial income that is taxed from either a person or a corporate body.

Unlevered Rate

A financial metric that measures the return on investment without considering the impact of financial leverage.

Absolute Priority Rule

A principle in bankruptcy proceedings that senior creditors are paid in full before junior creditors and equity holders receive any payment.