What is the effect on net income for the current year if a company fails to record a purchase of materials in transit (FOB shipping point)but includes the materials in physical inventory at year-end?

Question

Quizplus · Accepted Answer

If the purchase of materials in transit is not recorded as an expense, then the company's net income will be overstated for the current year since the cost of goods sold will be understated due to the materials not being included in the calculation. Including the materials in physical inventory at year-end only exacerbates the problem by overstating the inventory and understating the cost of goods sold even further, resulting in an even greater overstatement of net income.

What Is the Effect on Net Income for the Current