Failure to make a necessary adjusting entry for accrued interest on a note payable would result in which of the following?
A)An understatement of both liabilities and stockholders' equity.
B)Net income to be overstated and assets to be understated.
C)Net income to be understated and liabilities to be understated.
D)An overstatement of net income, an understatement of liabilities, and an overstatement of stockholders' equity.

Question

Quizplus · Accepted Answer

The adjusting entry increases interest payable and interest expense, which 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.

Failure to Make a Necessary Adjusting Entry for Accrued Interest