Dubb Co.received merchandise on consignment.As of March 31, Dubb had recorded the transaction as a purchase and included the goods in inventory.The effect of this on its financial statements for March 31 would be
A)no effect.
B)net income was correct and current assets and current liabilities were overstated.
C)net income, current assets, and current liabilities were overstated.
D)net income and current liabilities were overstated.

Question

Quizplus · Accepted Answer

Dubb Co. should not have recorded the transaction as a purchase because the company does not own the goods. The correct accounting treatment is to record the goods as inventory held on consignment. This would have resulted in no effect on net income, but current assets and current liabilities would have been overstated.

Dubb CoReceived Merchandise on Consignment