What Would Be the Effect of the Return of Goods

question 6

Multiple Choice

What would be the effect of the return of goods previously sold on credit before payment is received on the statement of financial position, the income statement and the cash flow statement?

• A) Increase the inventory and liabilities in the statement of financial position, no effect on the income statement, no effect on the cash flow statement
• B) Increase the inventory and receivables in the statement of financial position, charge expense to the income statement, show cash outflow in the cash flow statement
• C) Increase the inventory and reduce the receivables in the statement of financial position, no effect on the income statement, no effect on the cash flow statement
• D) Increase the inventory and reduce the receivables in the statement of financial position, reduce sales and cost of sales in the income statement, no effect on the cash flow statement
• E) Increase the inventory and reduce the receivables in the statement of financial position, reduce sales in the income statement, no effect on the cash flow statement

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Definitions:

Fixed Dividend

A dividend that is set at a particular amount and does not vary, often found in preferred stocks.

Dividend Yield

A financial ratio that shows how much a company pays out in dividends each year relative to its share price.

Cost of Equity

The rate of return that a company is required to pay out to its equity investors, reflecting the compensation for the risk they undertake.