On October 1^st the company borrows $500,000 from a local bank for nine months. A note is signed with principal and 6% interest to be paid when the note matures next year. A note payable was recognized on October 1^st and no other entries regarding this transaction were made until December 31st.

$__________ In the adjusting entry recorded on December 31^st determine the amount of interest expense that should be reported.

What effect would failure to record the adjusting entry for this note payable have on the financial statement items?

A. would cause it to be overstated

B. would cause it to be understated

C. would have no effect

Assets	Liabilities	Stockholders Equity	Revenue	Expenses	Net income