What Is the Effect on the Financial Statements When a Company

question 56

Multiple Choice

What is the effect on the financial statements when a company fails to record depreciation expense at year-end?

• A)Net income is overstated and stockholders' equity is understated.
• B)Expenses are understated and stockholders' equity is understated.
• C)Expenses are understated and liabilities are overstated.
• D)Net income is overstated and assets are overstateD.Failure to record depreciation results in expenses being too low, net income being overstated and assets being overstated.Not recording depreciation expense fails to increase accumulated depreciation that, as a contra-asset, fails to decrease assets.

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Definitions:

Bottom-Up Change

An approach to organizational change that initiates from the lower levels of the organization and involves engaging employees in the change process.

Top-Down Change

Organizational transformation initiatives that are initiated by high-level executives and then disseminated down through the ranks of the company.

Transformational Change

A comprehensive shift in an organization's culture, processes, and overall strategy, aiming to achieve significant improvements.

Clear Advantage

A distinct and obvious benefit or superiority that something or someone has over competitors.