What Is the Effect on Net Income for the Current

question 93

Multiple Choice

What is the effect on net income for the current year if a company fails to record a purchase of materials in transit (FOB shipping point) but includes the materials in physical inventory at year-end?

• A)Net income is overstated.
• B)Net income is understated.
• C)Net income is unaffected.
• D)Not enough information is provided to determine the answer.

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Definitions:

Plant Expansion

A process by which a company enlarges its operational capacity or adds to its production capabilities, possibly by acquiring more space, machinery, or buildings.

Total Amounts

The full quantities or sums reached by counting, calculating, or combining all parts.

Variable Costs Per Unit

Costs that vary directly with the level of production or volume of goods produced, altering according to the amount produced.

Production Increases

Refers to a rise in the quantity of goods and services produced by a company or economy over a certain period.