Match each situation to its impact (a-c) on the current year's net income.
-Purchased merchandise was shipped FOB shipping point on the last day of the year. The cost of the merchandise was not included in ending inventory.
A)Net income for the current year will be overstated.
B)Net income for the current year will be understated.
C)There will be no error effect on net income.

Question

Quizplus · Accepted Answer

Since the merchandise was shipped FOB shipping point, it should be included in the buyer's inventory once shipped. If the cost of the merchandise was not included in the ending inventory, expenses (cost of goods sold) are overstated, and as a result, net income is understated.

Match Each Situation to Its Impact (A-C) on the Current