Eller CoReceived Merchandise on Consignment

question 8

Multiple Choice

Eller Co.received merchandise on consignment.As of January 31, Eller included the goods in inventory, but did not record the transaction.The effect of this on its financial statements for January 31 would be

• A)net income, current assets, and retained earnings were overstated.
• B)net income was correct and current assets were understated.
• C)net income and current assets were overstated and current liabilities were understated.
• D)net income, current assets, and retained earnings were understated.

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Definitions:

Normal Return

The expected return on an investment under normal conditions, considering historical averages and market conditions.

Excess Earnings

Profits that exceed the normal expected return on investment or capital for a business operation or asset.

Fair Value

The estimated price at which an asset or liability could be bought or sold in an orderly transaction between market participants.

Goodwill

A non-physical asset that comes into existence when a company is purchased at a price higher than the fair market value of its net identifiable assets.