A Company Failed to Record an Acquisition of Merchandise and Its

question 48

Multiple Choice

A company failed to record an acquisition of merchandise and its related liability, but the merchandise was included in ending inventory. The effect on the financial statements was to:

• A) understate both assets and liabilities.
• B) understate net income and owners' equity.
• C) understate assets and owners' equity.
• D) understate liabilities, and overstate both net income and owners' equity.

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Definitions:

Direct Material

Raw materials that can be directly attributed to the production of a specific product.

Processing Costs

Expenses associated with the operation of processing goods, often related to manufacturing or production processes.

Labour Costs

The total expenses borne by employers for the wages, benefits, and taxes associated with their workforce.

Conversion Costs

Costs incurred to convert raw materials into finished products, typically including direct labor and manufacturing overhead.