At the end of 2018 it is discovered that the accountant for Gower Company failed to record $60,000 of interest payable that had accrued since the last interest payment date.The current ratio,quick ratio,and debt ratio,as well as the financial statements,had already been computed using the erroneous data.Correction of the accounting records will have which of the following effects?
A)Net income as formerly computed will not be affected by the correction of the error.
B)The interest coverage ratio as formerly computed will not change as a result of the correction.
C)The debt ratio as formerly computed will decrease as a result of the correction.
D)The quick ratio as formerly computed will decrease as a result of the correction.

Question

Quizplus · Accepted Answer

The correction of the accounting records will decrease the cash balance by $60,000, which will decrease both the current assets and the quick assets. As a result, the quick ratio (which excludes inventory from current assets) will decrease. Net income will be affected by the correction since interest expense will be higher, but it is not specified whether it will increase or decrease. The interest coverage ratio and debt ratio may also be affected, depending on the specific values before and after the correction.

At the End of 2018 It Is Discovered That the Accountant