Southern Company\'s accountant failed to accrue as of 12/31/13 some employee fri

Question

Southern Company's accountant failed to accrue as of 12/31/13 some employee fringe benefit program expenses that were incurred in 2013 and that will be paid in 2014. The result of this omission is to:

overstate the current ratio at 12/31/13 and overstate ROI and ROE for the year ended 12/31/13.

overstate the current ratio at 12/31/13 and understate ROI and ROE for the year ended 12/31/13.

understate the current ratio at 12/31/13 and understate ROI and ROE for the year ended 12/31/13.

not affect the current ratio at 12/31/13 but to overstate ROI and ROE for the year ended 12/31/13.

overstate the current ratio at 12/31/13 and overstate ROI and ROE for the year ended 12/31/13.

overstate the current ratio at 12/31/13 and understate ROI and ROE for the year ended 12/31/13.

understate the current ratio at 12/31/13 and understate ROI and ROE for the year ended 12/31/13.

not affect the current ratio at 12/31/13 but to overstate ROI and ROE for the year ended 12/31/13.

Explanation / Answer

Southern Company's accountant failed to accrue some fringe benefit program expenses that were incurred in 2013 which lead to understating of current liabilities which in turn increases the current ratio i.e overstating the current ratio at 12/31/13

This also leads to understating of expenses which in turn raises the Return on income and Return on equity i.e Overstating ROI & ROE for the year ended 12/31/13

Option A is correct

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