Use the following to answer questions $11-12$

On August $1^{st}$ the company borrows $$300,000$ from a local bank

for nine months. A note is signed with principal and $8\%$ interest

to be paid when the note matures next year. A note payable was

recognized on August $1^{st},$ and no other entries regarding this

transaction were made until December $31$st$.$

$11.$$

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