A Company Using a Periodic Inventory System Neglected to Record

question 40

Multiple Choice

A company using a periodic inventory system neglected to record a purchase of merchandise on credit at year end. This merchandise was omitted from the year end physical count. How will these errors affect assets, liabilities, owners' equity at year end and net earnings for the year? $\begin{array} { | l | l | l | l | l | } \hline \text { Assets } & \text { Liabilities } & \text { Owners' Equity } & \text { Net Earnings } \\\hline 1 & \text { No effect } & \text { Overstate } & \text { understate } & \text { Understate } \\\hline 2 & \text { No effect } & \text { Understate } & \text { Overstate } & \text { Overstate } \\\hline 3 & \text { Understate } & \text { No effect } & \text { Understate } & \text { Understate } \\\hline 4 & \text { Understate } & \text { Understate } & \text { No effect } & \text { No effect } \\\hline\end{array}$

• A) Choice 1
• B) Choice 2
• C) Choice 3
• D) Choice 4

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Definitions:

International Gold Standard

A monetary system in which countries tie the value of their currencies to a specific amount of gold, facilitating stable exchange rates and international trade.

Balance of Payments

A log detailing all financial interactions between a country's inhabitants and other global entities over a specific timeframe.

International Gold Standard

A monetary system in which the value of a country's currency is directly linked to a specific amount of gold, facilitating stable exchange rates and international trade.

Monetary Unit

The standard unit of value of a currency, used as a medium of exchange within an economy.