Glee Inc. is a manufacturer of musical instruments and its year end is September 30th. Copa Loca, a local music school, purchased some instruments from Glee but was not satisfied with the quality and returned the goods to Glee during the last week of September. Being very busy with year end, Glee received the goods from Copa Loca on September 30th but only processed the returned merchandised and issued a credit note in October. This represents a
A) cutoff (allocation) misstatement.
B) understandability misstatement.
C) significant misstatement.
D) classification misstatement.

Question

Quizplus · Accepted Answer

This is a cutoff (allocation) misstatement because the return was made in September, but the credit note was issued in October. This means the return was not properly recorded in the correct accounting period, leading to a misstatement in the financial statements.

Glee Inc Is a Manufacturer of Musical Instruments and Its Year