Question

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

Group of answer choices

no effect.

net income was correct and current assets and current liabilities were overstated.

net income, current assets, and current liabilities were overstated.

net income and current liabilities were overstated.

Answer 1

Solution :

-Option with "net income was correct and current assets and current liabilities were overstated." is correct

Explaiantion:

If goods held at consignment is recorded as purchases and included in inventory it will:

Increase the assets ( as it is included in inventory )

Increases the liability ( as it increases accounts payable)

No effect on net income ( as both purchases and ending inventory is increases so COGS will remain same therefore it nullify the effect on net income)

Therefore,

net income was correct and current assets and current liabilities were overstated