On September 1,2018,Heartford Construction Lends $50,000 to a Customer with 9

question 130

Multiple Choice

On September 1,2018,Heartford Construction lends $50,000 to a customer with 9% interest.The note and interest are due in twelve months.The note receivable is recorded for $50,000 on September 1,and the following year-end adjusting entry is made on December 31,2018: At the end of 2018,which of the following is true?
$$\begin{array} { | c | r | r | } \hline \text { Interest Receivable } & 4,500 & \\\hline \text { Interest Revenue } & & 4,500 \\\hline\end{array}$$

• A)Revenues are understated.
• B)Liabilities are understated.
• C)Assets are overstated.

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Definitions:

Useful Life

The estimated period that an asset is expected to be usable for the purpose for which it was acquired, affecting its depreciation or amortization.

AASB 116

An Australian accounting standard that outlines the accounting treatment for property, plant, and equipment including recognition, depreciation, and impairment.

Revaluations

The process of adjusting the book value of a capital asset or currency to its current market value.

Property, Plant and Equipment

Long-term tangible assets held for business use and not expected to be converted to cash in the short term.