6. In 2021, XYZ made the mistake of not amortizing the Discount on Bonds Payable account. Indicate the effect on the Interest Expense reported in the Statement of Income and Expenses for the period ended December 31, 2021.

a. Overstated b. Understated c. It has no effect on the ledger accounts. d. The effect cannot be determined.

7. Assume that in 2019 XYZ, Inc. elected, in accordance with US GAAP, to report notes payable in the Statement of Financial Position at fair value. As of 12/31/19 the market value of the debt was $135,000 and the carrying or book value was $155,000. However, when preparing the financial statements, the required market adjustment was NOT made. Indicate the net effect on Total Equity as of December 31, 2019.

a. Overstated b. Understated c. It has no effect on the ledger accounts. d. The effect cannot be determined.