Feine Co Accepted Delivery of Merchandise Which It Purchased on Account

question 111

Multiple Choice

Feine Co. accepted delivery of merchandise which it purchased on account. As of December 31, Feine had recorded the transaction, but did not include the merchandise in its inventory. The effect of this on its financial statements for December 31 would be

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

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Definitions:

Ending Inventory

The total value of goods available for sale at the end of an accounting period, calculated by adding purchases to beginning inventory and subtracting cost of goods sold.

Inventory Costing

The approach employed for inventory valuation, incorporating methods such as FIFO (First In, First Out), LIFO (Last In, First Out), and the weighted average cost technique.

Gross Profit

The difference between revenue and the cost of goods sold, indicating the basic profitability of a company's core business activities.

FIFO

FIFO, or "First-In, First-Out," is an inventory valuation method wherein the oldest inventory items are recorded as sold first.