Asked by Jayla Ashley on Jul 12, 2024
Verified
The accountant for the Hilda Company recorded a purchase of merchandise on credit for the current year, but the merchandise was shipped FOB destination and did not arrive until after current year-end.Assuming a periodic inventory system, how would assets, liabilities, and retained earnings be affected on the year-end balance sheet? Asssets Liabilities Retained Earming\hlineI. No effect Understated Understated II. Understated Understated Understated III. No effect Overstated Overstated IV. No effect Overstated Understated \begin{array}{lll}&\text {Asssets }&\text { Liabilities}&\text { Retained Earming}\\\hlineI.&\text { No effect } & \text { Understated } & \text { Understated } \\II.&\text { Understated } & \text { Understated } & \text { Understated } \\III.&\text { No effect } & \text { Overstated } & \text { Overstated } \\IV.&\text { No effect } & \text { Overstated } & \text { Understated } \end{array}\hlineI.II.III.IV.Asssets No effect Understated No effect No effect Liabilities Understated Understated Overstated Overstated Retained Earming Understated Understated Overstated Understated
A) I
B) II
C) III
D) IV
FOB Destination
FOB Destination is a shipping term indicating the seller bears the shipping costs and maintains ownership until the goods reach the buyer's location.
Periodic Inventory System
An inventory accounting system where the inventory balance is updated at specific intervals, rather than continuously.
Retained Earnings
The portion of net income that is not distributed to shareholders but is kept by the company to be reinvested in its core business or to pay debt.
- Evaluate the consequences of inventory valuation mistakes on financial disclosures.
- Recognize how specific inventory entries affect assets, liabilities, and retained earnings in financial accounting.
Verified Answer
Jul 12, 2024
Learning Objectives
- Evaluate the consequences of inventory valuation mistakes on financial disclosures.
- Recognize how specific inventory entries affect assets, liabilities, and retained earnings in financial accounting.
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