Assume That a Purchase Invoice for $1,000 Was Appropriately Recorded

question 111

Multiple Choice

Assume that a purchase invoice for $1,000 was appropriately recorded in fiscal 2016,but the inventory was excluded in error during the ending inventory count.What impact will this have on fiscal 2017 financial reporting?

• A)Gross margin is understated by $1,000.
• B)Cost of sales is overstated by $1,000.
• C)Ending inventory is understated by $1,000.
• D)Beginning inventory is understated by $1,000.

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Definitions:

Fair Market Value

The price that a willing buyer and a willing seller would agree upon, given both parties have reasonable knowledge of the asset’s particulars.

Purchase Method

An accounting approach used to consolidate the financial statements of a buyer and a target company after an acquisition.

Diseconomies of Scale

The phenomenon where, beyond a certain point, the cost per unit increases as the scale of operations expands.