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:

Regulatory Restrictions

Rules or limitations set by a regulatory authority that guide or constrain actions within a specific area or industry.

Transfer of Consideration

The process by which payment is made, or value is exchanged, between parties in a transaction, often related to the acquisition of assets or services.

Cost Method

An accounting method used for investments, where the investment is recorded at its acquisition cost, without recognizing the investor's share of the investee's profit or loss until dividends are received.

Voting Shares

Shares that give the shareholder the right to vote on company matters, such as electing the board of directors, at shareholder meetings.