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

question 19

Multiple Choice

Assume that a purchase invoice for $1,000 was appropriately recorded in fiscal 2012, but the inventory was excluded in error during the ending inventory count. What impact will this have on fiscal 2013 financial reporting?

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

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Definitions:

Parent Company

A company that holds enough voting stock in another firm to control management and operations by influencing or electing its board of directors.

Consolidated Financial Statements

Financial reports that combine the accounts of a parent company and its subsidiaries into a single document.

Fair Value Method

An accounting approach used to measure assets and liabilities at estimates of their current value, rather than at historical cost or intrinsic value.

Outstanding Stock

Refers to the total shares of a company that are currently held by all its shareholders, including share blocks held by institutional investors and restricted shares held by insiders.