Atomic Company Did Not Record a December 2013 Purchase of Inventory

question 7

Multiple Choice

Atomic Company did not record a December 2013 purchase of inventory on credit until January 2014. Assuming that the December 31, 2013 ending inventory was correctly determined, what is the effect of this error on the financial statements for the year ended December 31, 2014?

• A) Net income is correct.
• B) Stockholders' equity is correct.
• C)Net income is overstated.
• D)Stockholders' equity is overstateD.Inventory related errors including purchase cutoff errors are self-correcting on the balance sheet after two periods.

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Definitions:

Pearson Correlation

A measure of the linear correlation between two variables, giving a value between -1 and 1 which indicates the direction and strength of the relationship.

Null Hypothesis

A statement used in statistics that suggests no effect or no difference; it is the hypothesis that researchers typically aim to nullify or disprove.

Precipitation

Any type of water, whether in liquid or solid state, that descends from the atmosphere, encompassing rain, snow, sleet, and hail.

Significance Level

The threshold below which a null hypothesis is rejected in statistical testing, typically denoted as alpha (α).