All else being equal, if a company FAILS to record an impairment loss on a depreciable asset at the end of the accounting period, what is the overall net effect on net income and the balance sheet equation for that period? ItemNet IncomeAssetsLiabilitiesOwners’ EquityA.OverstatedUnderstatedNo effectUnderstatedB.OverstatedOverstatedNo effectOverstatedC.No effectNo effectNo effectNo effectD.UnderstatedUnderstatedNo effectUnderstatedE.UnderstatedOverstatedNo effectOverstated

The given question is asked to find the correct option from the above available options and explain. Accounting equations: The accounting equation indicates the total assets of a company equal to the total equity or owner's equity and liabilities. It is also indicated a relationship between total assets, equity, and liabilities. Total assets = Total equity or owner's equity + Total liabilities. Concept of Impairment loss: The impairment loss arises due to the difference between the carrying amount of an asset and the net recoverable amount of the asset. The journal entry to record the impairment loss of an asset is as follows: (a) Impairment loss A/c DR. and Asset A/c CR. (To adjust the amount of impairment with the respective asset). (b) income summary A/c or profit and loss A/c DR. and Impairment loss A/c CR. (To charge impairment loss in income summary). If the above two adjusting entries are not recorded then this will affect the financial statement: Net income Assets Liabilities Owner's equity Overstated Overstated No effect Overstated Therefore, the correct option is (B) i.e. Overstated overstated No effect overstated.

Answered: All else being equal, if a company…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

See similar textbooks

Related questions

Question

All else being equal, if a company FAILS to record an impairment loss on a depreciable asset at the end of the accounting period, what is the overall net effect on net income and the balance sheet equation for that period?

Item	Net Income	Assets	Liabilities	Owners’ Equity
A.	Overstated	Understated	No effect	Understated
B.	Overstated	Overstated	No effect	Overstated
C.	No effect	No effect	No effect	No effect
D.	Understated	Understated	No effect	Understated
E.	Understated	Overstated	No effect	Overstated

Expert Solution

Trending now

This is a popular solution!

Step by step

Solved in 2 steps

SEE SOLUTION Check out a sample Q&A here

Knowledge Booster

Learn more about

Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.

Similar questions