What Is the Effect on the Financial Statements When a Company

Multiple Choice

What is the effect on the financial statements when a company fails to record depreciation expense at year-end?

A) Net income is overstated and stockholders' equity is understated.
B) Expenses are understated and stockholders' equity is understated.
C) Expenses are understated and liabilities are overstated.
D) Net income is overstated and assets are overstateD.Failure to record depreciation results in expenses being too low, net income being overstated and assets being overstated.Not recording depreciation expense fails to increase accumulated depreciation that, as a contra-asset, fails to decrease assets.