A Company Failed to Record an Acquisition of Merchandise and Its

question 51

Multiple Choice

A company failed to record an acquisition of merchandise and its attendant liability, but it was included in the physical count of ending inventory. The effect on the financial statements would be to:

• A) overstate net income and owners' equity.
• B) understate both assets and liabilities.
• C) understate liabilities and overstate both net income and owners' equity.
• D) understate assets and owners' equity.

---

Definitions:

Excess Reserves

Bank reserves that exceed the minimum reserve requirements set by central banking authorities.

Open Market

A scenario where economic transactions are conducted in a free manner without restrictions, allowing for the buying and selling of goods and services.

Government Bonds

Debt securities issued by a government to finance its expenditures, considered low-risk investments.

Interest Rates

The cost of borrowing money or the return on invested funds, typically expressed as a percentage of the principal.