Atomic Company Did Not Record a December 2016 Purchase of Inventory

question 130

Multiple Choice

Atomic Company did not record a December 2016 purchase of inventory on credit until January 2017. Assume that the December 31, 2016 ending inventory was correctly determined. What is the effect of this error on the financial statements for the year ended December 31, 2016?

• A)Net income is correct.
• B)Stockholders' equity is understated.
• C)Net income is overstated.
• D)Current assets are understateD.The 2016 purchases are understated, which causes cost of goods sold to be understated and net income to be overstated in 2016.

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Definitions:

Sales

The revenue generated from selling goods or services over a specific period of time.

Products

Goods or services offered by a business to consumers, often resulting from a manufacturing or production process.

Revenues

The total amount of money received by a company for goods sold or services provided during a certain time period.

Costs and Expenses

The consumption of resources or services in the production of goods or in providing services, resulting in financial outlay.