Final answer:
The correct answer is (c) 'Overstated, understated, overstated, understated' because failing to record utility expenses results in understating liabilities, overstating income and equity, but does not directly affect the current period's assets.
Step-by-step explanation:
When Johnson Company fails to record utilities consumed during the current accounting period, they will be billed for utilities in the next accounting period. This means that the utility expense, which is an expense for the current period, has not been recognized. Thereby the current period's expenses are understated, and subsequently, net income is overstated because expenses are deducted from revenues to arrive at net income. Since the utilities have been consumed but not yet recorded, the liability to pay for these utilities in the future is not recognized, so liabilities are understated. Owner's equity or retained earnings are overstated, because it includes the net income which, as noted, is overstated. Finally, current-period assets are not affected by this mistake as the unpaid utility bill does not change the asset balance until it is recognized as an account payable. Therefore, the correct answer to the question is: 'Overstated, understated, overstated, understated' (c).