Atomic Company Did Not Record a December 2016 Purchase of Inventory

question 119

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, 2017?

• A)Net income is correct.
• B)Stockholders' equity is correct.
• C)Net income is overstated.
• D)Stockholders' equity is overstateD.Inventory related errors including purchase cutoff errors are self-correcting on the balance sheet after two periods.

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Definitions:

Accounting Standards

Rules and guidelines set by regulatory bodies that dictate how financial transactions and accounting practices should be recorded and reported.

Foreign Subsidiary

A company that is partially or wholly owned and controlled by a parent company but operates in a different country.

Accounting

The systematic recording, reporting, and analysis of financial transactions of a business.