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 accrue interest expense at year-end?

A) Net income is overstated and assets are overstated.
B) Expenses are understated and liabilities are understated.
C) Expenses are understated and stockholders' equity is understated.
D) Net income is overstated and liabilities are overstateD.Failure to accrue interest expense results in expenses being understated and the resulting interest payable is not increased to reflect the obligation to pay this expense.