Question

Nicholas Corporation accrues the interest expense on a​ short-term note payable at the end of its fiscal year. Due to this transaction A. current liabilities will increase and​ stockholders' equity will increase. B. current liabilities will decrease and​ stockholders' equity will decrease. C. current liabilities will increase and current assets will increase. D. current liabilities will increase and​ stockholders' equity will decrease.

Answer 1

When Nicholas Corporation accrues interest on a note payable, its current liabilities increase while stockholders' equity decreases. This reflects the additional obligation to pay interest and the incurred expense reducing net worth.

Step-by-step explanation:

When a business such as Nicholas Corporation accrues interest expense on a short-term note payable, it must record the interest that has been incurred but not yet paid. This accounting entry increases the amount of current liabilities on the balance sheet, reflecting the company's obligation to pay interest in the near future. However, because this accrued expense is a cost that the company has incurred, it also reduces stockholders' equity. Stockholders' equity is decreased by expenses because they represent a reduction in the company's net worth. Considering these accounting principles, the correct answer to the question is D. current liabilities will increase and stockholders' equity will decrease.

Answer 2

D. current liabilities will increase and​ stockholders' equity will decrease.

Step-by-step explanation:

It accrued interest expense. It recognize interest expense and interest payable.

so we have an expense, which decrease the net income. The net income is part of equity, so it decrease the equity as well.

and it recognize a payable which increase the liablities.

This makes D the correct option.