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.

Question

Quizplus · Accepted Answer

When a company fails to accrue interest expense at year-end, expenses are understated, which means that the interest expense is not reflected on the income statement, leading to the overstatement of net income. Additionally, as the interest payable account is not increased to reflect the obligation to pay this expense, liabilities are understated, leading to a distortion of the financial position of the company.

What Is the Effect on the Financial Statements When a Company