On January 1, Lessee Company Incorrectly Recorded a 10-Year Operating

Multiple Choice

On January 1, Lessee Company incorrectly recorded a 10-year operating lease as a capital lease.The lease requires annual payments.As a result of the recording error, Lessee Company's assets and total liabilities will be $\begin{array}{lll}& \text { Total Assets}& \text { Total Liabilities}\\ \text { I. } & \text { not affected } & \text { not affected } \\\text { II. } & \text { not affected } & \text { understated }\\\text { III. } & \text { understated }&\text { overstated }\\\text { IV. } &\text { overstated }&\text { overstated } \end{array}$

A) I
B) II
C) III
D) IV