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

Question

Quizplus · Accepted Answer

Wilma recorded the consignment as a purchase, which means she recognized the goods as her own and included them in inventory. This would overstate current assets (inventory) and current liabilities (accounts payable to Betty). Net income would be correct because the cost of goods sold would include the cost of the consigned goods, which would offset the overstatement of inventory.

Wilma Received Merchandise on Consignment from Betty