Assume Select made no adjusting entry with respect to this note before preparing the financial statements at December 31, 2011. What is the effect of this error on the financial statements for 2011?
A) Total liabilities are overstated.
B) Net income is overstated.
C) Owners' equity is understated.
D) Interest Payable is overstated.

Question

Quizplus · Accepted Answer

Since no adjusting entry was made for the accrued interest expense, the expense is understated and therefore net income is overstated. This results in a misstatement of the financial statements for the period.

Assume Select Made No Adjusting Entry with Respect to This