Atomic Company did not record a December 2019 purchase of inventory on credit until January 2020.Assume that the December 31,2019 ending inventory was correctly determined.
-What is the effect of this error on the financial statements for the year ended December 31,2019?
A)Net income is correct.
B)Stockholders' equity is understated.
C)Net income is overstated.
D)Current assets are understated.

Question

Atomic Company did not record a December 2019 purchase of inventory on credit until January 2020.Assume that the December 31,2019 ending inventory was correctly determined. 
-What is the effect of this error on the financial statements for the year ended December 31,2019?
A)Net income is correct.
B)Stockholders' equity is understated.
C)Net income is overstated.
D)Current assets are understated.

Quizplus · Accepted Answer

The failure to record the purchase means that the cost of goods sold is understated, leading to an overstatement of net income for the year ended December 31, 2019.

Atomic Company Did Not Record a December 2019 Purchase of Inventory