During Year 1, Bradley Corporation issued a $20,000 face value discount note to Fidelity Bank. The note had a 6% discount rate and a one-year term to maturity. On December 31, Year 1, Bradley failed to make the year-end adjustment to accrue the related interest. Which of the following summarizes the effect of this error?
A) Net income for Year 1 is overstated and liabilities for Year 1 are overstated
B) Net income for Year 1 is understated and net income for Year 2 is overstated
C) Net income for Year 1 is understated and liabilities for Year 1 are overstated
D) Net income for Year 2 is understated and liabilities for Year 1 are understated
Correct Answer:
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