The Accountant for Frieda Company Did Not Record a Purchase

question 70

Multiple Choice

The accountant for Frieda Company did not record a purchase of merchandise on credit or include the items in the ending inventory.Assuming a periodic inventory system, the effect of these omissions on assets, liabilities, and retained earnings would be $\begin{array}{lll}&\text {Asssets }&\text { Liabilities}&\text { Retained Earming}\\\hlineI.&\text { Understate } & \text { Understate } & \text { Understate } \\II.&\text { Understate } & \text { Understate } & \text { No effect } \\III.&\text { No effect } & \text { Understate } & \text { No effect } \\IV.&\text { Underetate } & \text { No effect } & \text { ITnderctate }\end{array}$

• A)I
• B)II
• C)III
• D)IV

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Definitions:

Conversion Costs

The combined costs of direct labor and manufacturing overhead required to convert raw materials into finished products.

Equivalent Units

A term used in cost accounting to indicate a standard amount of work done on an incomplete unit, making it comparable to complete units.

Beginning Inventory

The value of goods available for sale at the start of an accounting period.

First-In, First-Out

An inventory valuation method where the goods purchased or produced first are sold or used first.