On December 27, 2011, Johnson Company ordered merchandise for resale from Quantum, Inc., that cost $7,000 (terms cash within 10 days). Quantum shipped the merchandise f.o.b. shipping point on December 28, 2011, and the goods arrived on January 2, 2012. The invoice was received on December 30, 2011. Johnson Company did not record the purchase in 2011 and did not include the goods in ending inventory. The effects on Johnson Company's 2011 financial statements were
A) income and owners' equity were correct; liabilities were incorrect, assets were correct.
B) income and owners' equity were correct; assets and liabilities were incorrect.
C) income, assets, liabilities, and owners' equity were correct.
D) income, assets, liabilities, and owners' equity were incorrect.

Question

Quizplus · Accepted Answer

Johnson Company should have recorded the purchase in 2011 and included the goods in ending inventory, which would have increased both assets and liabilities. Since they did not do so, their financial statements are incorrect. Income and owners' equity are not affected by this error.

On December 27, 2011, Johnson Company Ordered Merchandise for Resale