If no interest is accrued on a note payable by year-end, what is the required adjustment upon discovery?

When interest has not been accrued on a note payable by the end of the accounting period, the necessary adjustment is to recognize the interest expense that has incurred but has not yet been recorded. This situation requires a prior period adjustment if the financial statements for that prior period are being restated to reflect the accurate financial position.

A prior period adjustment is necessary because the failure to accrue interest affects the financial statements of earlier periods, which may misstate liabilities and expenses. This adjustment ensures that the financial statements present a true and fair view of the company's financial health when reviewed historically, adhering to the principles of accrual accounting.

The other choices revolve around the implications of whether the adjustments are current or necessitate addressing previous accounting periods. In this case, since interest was not recognized in the correct accounting period, a disclosure and adjustment must be reflective of both periods to truly correct the financial statements. Therefore, the need for a prior period adjustment accurately addresses the misreporting of liabilities due to the unrecognized interest expense.