The September 30,2014,physical inventory of Pollack Corporation appropriately included $6,300 of merchandise purchased on account that was not recorded in purchases until October 2014.What effect will this error have on September 30,2014,assets,liabilities,retained earnings,and earnings for the year then ended,respectively?
A) Understate;no effect;overstate;overstate
B) No effect;overstate;understate;understate
C) No effect;understate;overstate;overstate
D) No effect;understate;understate;overstate

Question

Quizplus · Accepted Answer

The inventory is included in assets, so there is no effect on assets. Liabilities are understated because the purchase was not recorded. Retained earnings and earnings are overstated because the cost of goods sold is understated due to the unrecorded purchase.

The September 30,2014,physical Inventory of Pollack Corporation Appropriately Included $6,300