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On December 31, 2008, special insurance costs, incurred but unpaid, were not recorded.

On December 31, 2008, special insurance costs, incurred but unpaid, were not recorded. If these insurance costs were related to work in process, what is the effect of the omission on accrued liabilities and retained earnings in the December 31, 2008 balance sheet?
   Accrued Liabilities                     Retained Earnings
A.   No Effect                                No Effect
B.   No Effect                                Overstated
C.   Understated                              No Effect
D.   Understated                              Overstated

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