Belle Co.received merchandise on consignment.As of March 31, Belle had recorded the transaction as a purchase and included the goods in inventory.The effect of this on its financial statements for March 31 would be
A)no effect.
B)net income was correct and current assets and current liabilities were overstated.
C)net income, current assets, and current liabilities were overstated.
D)net income and current liabilities were overstated.

Question

Quizplus · Accepted Answer

The goods were recorded as a purchase, which means that Belle Co. recognized the cost of the goods as an expense in March. However, since the goods were received on consignment, Belle Co. does not own the goods and should not have included them in inventory. This means that current assets and current liabilities were overstated. The overstatement of expenses would have reduced net income.

Belle CoReceived Merchandise on Consignment