1. On July 1 of the current year, a company purchased equipment. The company neglects to record the adjusting-entry for depreciation before preparing the current years financial statements. Which of the following is correct regarding the companys financial statements for the current year?

a) Revenues are understated.

b) Expenses are overstated.

c) Assets are overstated.

d) Retained earnings is understated.

e) Liabilities are understated.

2.

A company borrowed money from a bank by signing a three-year note payable in the amount of $12,000 on May 1. The note requires the company to pay interest at an annual rate of 8%. The company records adjusting entries on December 31. The adjusting entry that the company should record for accrued interest on December 31 of the same year would include a debit to interest expense for

a) $1,200.

b) $2,880.

c) $600.

d) $160.

e) $640.