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

Quizplus · Accepted Answer

The goods were shipped FOB shipping point on December 28, 2014, which means ownership transferred to Admission Company at that point. Not recording the purchase in 2014 and not including the goods in ending inventory means that both assets (inventory) and liabilities (accounts payable) were understated. Income and owners' equity would not be directly affected by this transaction in 2014 since it's a purchase of inventory, not an expense until sold.

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