Failure to Make a Necessary Adjusting Entry for Accrued Interest

question 33

Multiple Choice

Failure to make a necessary adjusting entry for accrued interest on a note payable would result in which of the following?

• A)Liabilities and stockholders' equity would both be understated.
• B)Net income would be overstated and assets would be understated.
• C)Net income would be understated and liabilities would be understated.
• D)Net income and stockholders' equity would be overstated and liabilities would be understateD.The adjusting entry increases interest payable and interest expense, which increases liabilities and decreases both net income and stockholders' equity.Failure to make the entry causes both net income and stockholders' equity to be overstated and liabilities to be understated.

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Definitions:

Substitutes

Products or services that can be used in place of each other, offering consumers choices in the marketplace.

Negative Relationship

A situation or condition in which an increase in one variable leads to a decrease in another variable.

Quantity Demanded

The total amount of goods or services that consumers are willing and able to purchase at a given price over a specific time period.

Demand Curve

The demand curve is a graphical representation showing the relationship between the price of a good and the quantity demanded by consumers, typically downward sloping.