Chapter 8 - Inventory - LO 4

If a company uses the periodic inventory system, what is the impact on net income of including goods in transit f.o.b. shipping point in purchases, but not ending inventory?

• Overstate net income.

• Understate net income.

• No effect on net income.

• Not sufficient information to determine effect on net income.

If a company uses the periodic inventory system, what is the impact on the current ratio of including goods in transit f.o.b. shipping point in purchases, but not ending inventory?

• Overstate the current ratio.

• Understate the current ratio.

• No effect on the current ratio.

• Not sufficient information to determine effect on the current ratio.

If the beginning inventory for 2021 is overstated, the effects of this error on cost of goods sold for 2021, net income for 2021, and assets at December 31, 2022, respectively, are

• overstatement, understatement, overstatement.

• overstatement, understatement, no effect.

• understatement, overstatement, overstatement.

• understatement, overstatement, no effect.

The failure to record a purchase of merchandise on account even though the goods are properly included in the physical inventory results in

• an overstatement of assets and net income.

• an understatement of assets and net income.

• an understatement of cost of goods sold and liabilities and an overstatement of assets.

• an understatement of liabilities and an overstatement of equity.

Dolan Co. received merchandise on consignment. As of March 31, Dolan had recorded the transaction as a purchase and included the goods in inventory. The effect of this on its financial statements for March 31 would be

• no effect.

• net income was correct and current assets and current liabilities were overstated.

• net income, current assets, and current liabilities were overstated.

• net income and current liabilities were overstated.

Green Co. received merchandise on consignment. As of January 31, Green included the goods in inventory, but did not record the transaction. The effect of this on its financial statements for January 31 would be

• net income, current assets, and retained earnings were overstated.

• net income was correct and current assets were understated.

• net income and current assets were overstated and current liabilities were understated.

• net income, current assets, and retained earnings were understated.

Feine Co. accepted delivery of merchandise which it purchased on account. As of December 31, Feine had recorded the transaction, but did not include the merchandise in its inventory. The effect of this on its financial statements for December 31 would be

• net income, current assets, and retained earnings were understated.

• net income was correct and current assets were understated.

• net income was understated and current liabilities were overstated.

• net income was overstated and current assets were understated.

On June 15, 2022, Wynne Corporation accepted delivery of merchandise which it purchased on account. As of June 30, Wynne had not recorded the transaction or included the merchandise in its inventory. The effect of this on its statement of financial position for June 30, 2022 would be

• assets and equity were overstated but liabilities were not affected.

• equity was the only item affected by the omission.

• assets, liabilities, and equity were understated.

• None of these answers are correct.

What is the effect of a €50,000 overstatement of last year's inventory on current year's ending retained earning balance?

• Understated by €50,000.

• No effect.

• Overstated by €50,000.

• Need more information to determine.