Houston Company borrowed $$20,000$ from Dallas Company on March $1,$ Year $1.$ Houston issued a note payable that had a one$-$year term and the annual interest rate is $8\%.$ How will the

necessary adjustment, dated December $31,$ Year $1,$ affect the Year $1$ financial statements?

Multiple Choice

Increase liabilities and increase expenses

Increase assets and increase revenues

Increase assets and increase liabilities

No effect