During the adjusting process two transactions were neglected or omitted. the first is for unearned rent revenue of which $540 was earned during the period, the second was for accrued interest payable of which $225 is owed for the period. as a result of these omissions (a) assets are overstated by $540. (b) these omissions would not affect the financial statements; the financial statements will be correct.(c) liabilities are overstated by $315. (d) revenue is overstated by $765. (e) net income is overstated by $225.

(E) net income is overstated by $225

Explanation:

With omitted income of $540 which is earned shall be added to revenue thus no with this revenue was understated.

Accrued interest payable is a liability to be recorded even if it is to be paid at a later date.

This is an expense to be recognized in Income Statement and a liability in balance sheet.

If not recognized means income is overstated with the same amount.

Net effect is -540 + 225 = $315 revenue understated

Since it is not in option correct option relevant is

(E) net income is overstated by $225.

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