The Accountant for Ella Company Made the Following Errors Related

question 38

Multiple Choice

The accountant for Ella Company made the following errors related to the inventory in 2016:
1) The beginning inventory for 2016 was understated by $1,350 due to an error in the physical count.
2) A $1,500 purchase of merchandise in transit was not recorded as a purchase and was not included in ending inventory.
Assuming a periodic inventory system, Ella Company's 2016 net income will be

• A) understated by $150.
• B) overstated by $1,350.
• C) overstated by $1,500.
• D) overstated by $150.

---

Definitions:

Dissolution

The process of legally dissolving a corporation or partnership, ending its existence.

Partnership

A business structure where two or more individuals manage and operate a business in accordance with the terms and objectives set out in a Partnership Agreement.

Wrongful Dissolution

A partnership dissolution that violates the partnership agreement.

Partnership Agreement

A contract between partners in a business that outlines the business structure, distribution of profits and losses, and the terms for changes and dissolution.