In the situation described in problem 10,if Lee records the asset and note at $11,800,the overall effect will be
A)A correct acquisition cost and correct interest expense
B)A correct acquisition cost and understated interest expense
C)An understated acquisition cost and understated interest expense
D)An overstated acquisition cost and understated interest expense

Question

Quizplus · Accepted Answer

If Lee records the asset and note at $11,800, it means he is only recording the face value of the note as the acquisition cost instead of adding the interest expense. This would result in an overstated acquisition cost (which should be $12,000) and an understated interest expense.

In the Situation Described in Problem 10,if Lee Records the Asset