At the beginning of the current year, ABC Co. sold equipment with a 2-year service warranty for a single payment of $20,000. The service warranty can be purchased separately by the customer. The fair value of the equipment was $18,000. ABC recorded this transaction with a debit of $20,000 to cash and a credit of $20,000 to sales revenue. Assuming the proper entry was made for cost of goods sold, which of the following statements is correct regarding ABCs current-year financial statements?

Select one:

a.

The financial statements are correct.

b.

Net income will be overstated.

c.

Total assets will be overstated.

d.

Total liabilities will be overstated.