Houston Co. borrowed $20,000 from Dallas Co. on March 1, Year 1. Houston issued a note payable that had a one-year term and the annual interest rate is 8%. How will the necessary adjustment, dated December 31, Year 1, affect the elements of the Year 1 financial statements?
A. Increase liabilities and increase expenses
B. Increase assets and increase liabilities
C. Increase assets and increase revenues
D. No effect
Answer: A
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