Assume That a $1,000 Purchase Invoice Received Close to Year-End

question 152

Multiple Choice

Assume that a $1,000 purchase invoice received close to year-end is not recorded in fiscal 2012, but the inventory is appropriately included in the ending inventory count. What impact will this have on fiscal 2012 financial reporting?

• A)Purchases are overstated.
• B)Purchases are understated.
• C)Gross margin is understated.
• D)Cost of sales is overstated.

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Definitions:

Reaction Formation

A defense mechanism where an individual unconsciously replaces unacceptable impulses with their opposites, often resulting in exaggerated behavior.

Unconscious Awareness

The state of having processes in the mind that occur without conscious perception, influencing thoughts, feelings, or actions.

Id

A component of personality in psychoanalytic theory, it represents the instinctual drives and is the source of basic impulses and desires.

Ego

The part of the psyche in psychoanalysis that deals with reality, operating on the reality principle and mediating between the desires of the id and the morals of the superego.