What Is the Effect on the Financial Statements When a Company

question 4

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)Net income is understated and liabilities are overstated.
• D)Revenues are understated and stockholders' equity is overstateD.Failure to recognize revenues that were previously reported as unearned results in lower revenues = lower net income figure; overstated unearned revenue = overstated liabilities.

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Definitions:

Trials

Formal judicial proceedings where disputes are resolved and judgments are made based on evidence presented.

Cross-Examination

The interrogation of a witness by the opposing party in a court of law, following the initial examination.

Mediation

A form of alternative dispute resolution where a neutral third party helps the disputing parties to reach a mutually acceptable agreement.

Arbitration

is the process of resolving disputes outside courts, where a neutral third party makes a decision after hearing both sides.