The September 30, 2008 physical inventory of Baxter Corporation appropriately in

Question

The September 30, 2008 physical inventory of Baxter Corporation appropriately included $3,800 of merchandise purchased on account that was not recorded in purchases until October 2008. What effect will this error have on September 30, 2008 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

Explanation / Answer

purchase is used to calcuate the cost of goods sold hence cost of goods sold will be understated thus income will be overstated and hence retained earnings will be overstated inventory will be understated liabilities no affect as accounts payable was credited hence option A is the correct option understate;no effect;overstated;overstated

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