Assume That a $500 Purchase Invoice Received Close to Year-End

question 117

Multiple Choice

Assume that a $500 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 2013 financial reporting?

• A)Cost of sales is understated by $500.
• B)No effect on gross margin.
• C)Operating expenses are overstated by $500.
• D)Operating profit is overstated by $500.

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Definitions:

Implicit Guarantee

An unstated or implied promise or assurance, often believed to exist due to past practices or general market perceptions.

Future Performance

A contractual commitment to perform a service or deliver a product at a future date.

Breach of Warranty

The violation of a claim or promise about a product's condition, quality, or performance.

Discovered the Defect

The identification by a buyer or lessee of a flaw or deficiency in a product or property that was not known at the time of purchase or lease.