Atomic Company Did Not Record a December 2019 Purchase of Inventory

question 18

Multiple Choice

Atomic Company did not record a December 2019 purchase of inventory on credit until January 2020.Assume that the December 31,2019 ending inventory was correctly determined.
- What is the effect of this error on the financial statements for the year ended December 31,2020?

• A)Net income is correct.
• B)Stockholders' equity is correct.
• C)Net income is overstated.
• D)Stockholders' equity is overstated.

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Definitions:

Free Rider

An individual who benefits from resources, goods, or services without paying for them, leading to an economic problem in public goods and services provision.

Agency Problem

A conflict of interest inherent in any relationship where one party is expected to act in another's best interests.

Horizon Problem

A situation where the time horizon for decision making by managers is shorter than the long-term interest of the company, often due to differing objectives.