On December 27,2014,Admission Company ordered merchandise for resale from Eviction,Inc.,that cost $7,000 (terms cash within 10 days).Eviction shipped the merchandise F.o.b. shipping point on December 28, 2014, and the goods arrived on January 2, 2015. The invoice was received on December 30, 2014. Admission Company did not record the purchase in 2014 and did not include the goods in ending inventory. The effects on Admission Company's 2014 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

On December 27,2014,Admission Company ordered merchandise for resale from Eviction,Inc.,that cost $7,000 (terms cash within 10 days) .Eviction shipped the merchandise F.o.b. shipping point on December 28, 2014, and the goods arrived on January 2, 2015. The invoice was received on December 30, 2014. Admission Company did not record the purchase in 2014 and did not include the goods in ending inventory. The effects on Admission Company's 2014 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.

Quizplus · Accepted Answer

Admission Company did not record the purchase in 2014 and did not include the goods in ending inventory. As a result, both assets (inventory) and liabilities (accounts payable) are understated, which affects the balance sheet. However, since the cost was not recognized, the net income and owner's equity would be correct.

On December 27,2014,Admission Company Ordered Merchandise for Resale from Eviction,Inc