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 adjust the unearned revenue account for revenues earned at year-end?

A) Net income is understated and assets are understated.
B) Revenues are understated and liabilities are understated.
C) Net income is understated and liabilities are overstated.
D) Revenues are understated and stockholders' equity is overstateD.Failure to recognize revenues that were previously reported as unearned results in lower revenues = lower net income figure; overstated unearned revenue = overstated liabilities.