Recognizing a Loan Received as Revenue Instead of as a Liability

question 8

Multiple Choice

Recognizing a loan received as revenue instead of as a liability has a positive effect on the reported financial statements for all of the following except:

• A) It understates liabilities.
• B) It overstates revenues.
• C) It overstates net income.
• D) It overstates assets.

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Definitions:

Operating Expenses

Costs associated with the day-to-day functions of a business that are not directly tied to production.

Stockholders' Equity

The residual interest in the assets of a corporation after deducting liabilities, also known as shareholders' equity.

Balance Sheet

A financial statement that summarizes a company's assets, liabilities, and shareholders' equity at a specific point in time, showing the balance of income and expenditure over the preceding period.

Assets Decrease

Assets decrease refers to a reduction in the total value of a company’s assets, which can result from factors like asset sales, depreciation, or impairments.