Atomic Company did not record a December 2016 purchase of inventory on credit until January 2017. Assume that the December 31, 2016 ending inventory was correctly determined. What is the effect of this error on the financial statements for the year ended December 31, 2016?
A)Net income is correct.
B)Stockholders' equity is understated.
C)Net income is overstated.
D)Current assets are understateD.The 2016 purchases are understated, which causes cost of goods sold to be understated and net income to be overstated in 2016.

Question

Quizplus · Accepted Answer

The error would cause the 2016 purchases to be understated, resulting in an understatement of cost of goods sold and an overstatement of net income for the year. Therefore, net income is overstated. This error does not affect stockholders' equity or current assets.

Atomic Company Did Not Record a December 2016 Purchase of Inventory