Rock Corporation expensed all of its freight-in costs during the company’s first

Question

Rock Corporation expensed all of its freight-in costs during the company’s first year of business. This procedure, expensing all of the company’s freight in cost has an impact on the company’s financial statements. What will be the impact of expensing all the company’s freight in costs?

Assume Rock Corporation has an inventory balance at year-end

Assets                                     Liabilities                                          Owner’s Equity

A) Overstated                         Overstated                                          Overstated

B) Understated                       No Impact                                           Understated                           

C) Overstated                         No Impact                                           Overstated

D) Overstated                         No Impact                                           No Impact

E) Overstated                          No Impact                                           Understated

Explanation / Answer

Rock Corpoartion Freight in expensed out and not   inventorised. Effect : Freight in cost Overstated Expenses   Overstaed Profit/Retained Earning/Equity Understated Closing Balance inventory Understated Liability has no impact of this So the effect would be Asset   Liability Equity Understated No impact Understated Option B. is correct

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