Question

If a company records too much accrued interest revenue at the end of its fiscal year, all else being equal, what are the effects on its net income, total assets, total liabilities, and total stockholders' equity?

Answer 1

effects on:

net income - over stated

total assets - over stated

total liabilities - no effect

total stockholders' equity - over stated.

Step-by-step explanation:

Effect on net income: Net income will be overstated because too much accrued interest income is part of the total revenue. Revenue has been overstated.

Effect on total asset: Total asset will be overstated because accrued interest is a receivable and it will be overstated

Effect on total liability. This will have no effect on total liability because the transaction is not related to liability.

Effect on total stockholders' equity:

This will be overstated because asset has been overstated.