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:

Fostering Confidence

The process of encouraging and building belief in one's abilities or potential in others.

Taxpayer

An individual or entity that is obligated to make payments to governmental authorities based on income earned or goods and services provided.

Dependent Child

A dependent child is an individual, typically under the age of 19 (or 24 if a student), who is financially supported by a taxpayer and qualifies them to claim dependent-related tax benefits.

Wages

A fixed regular payment, typically calculated on an hourly, daily, or piecemeal basis, made by an employer to an employee, especially to a manual or unskilled worker.