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Exam IIA-CIA-Part3 All Questions

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Exam IIA-CIA-Part3 topic 1 question 112 discussion

Actual exam question from IIA's IIA-CIA-Part3
Question #: 112
Topic #: 1
[All IIA-CIA-Part3 Questions]

Which of the following describes the result if an organization records merchandise as a purchase, but fails to include it in the closing inventory count?

  • A. The cost of goods sold for the period will be understated.
  • B. The cost of goods sold for the period will be overstated.
  • C. The net income for the period will be understated.
  • D. There will be no effect on the cost of goods sold or the net income for the period.
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Suggested Answer: B 🗳️

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doris
Highly Voted 1 year, 1 month ago
Net income is affected by operating expenses and COGS. Overstating COGS would understating operating income but not net income. Thus only one answer is correct.
upvoted 10 times
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emtofid
Most Recent 2 weeks, 2 days ago
Selected Answer: B
Since the ending inventory is understated (missing the merchandise), the resulting COGS will be overstated. Consequently, this also causes the net income for the period to be understated due to the higher COGS reducing the overall profit. option C is also correct but but B is the more direct effect
upvoted 1 times
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Elvoo
1 month ago
Selected Answer: C
Why is C not the correct answer?
upvoted 1 times
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5016636409
4 months, 3 weeks ago
yeah, i agree with Doris. Net income is not affected in this case.
upvoted 1 times
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Shars
10 months, 3 weeks ago
I agree with Doris
upvoted 2 times
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NDOndo
1 year, 2 months ago
I agree with Iapayne2. Both b and c are correct answers.
upvoted 1 times
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Gbengacfe
1 year, 3 months ago
The direct impact is on the COGS and Gross Profit and by extension Net Profit. In the absence of Gross Profit in the answer options, the most appropriate answer will be the one revolving around COGS.
upvoted 2 times
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lapayne2
1 year, 3 months ago
If inventory is understated then COGS will be overstated and Net Income is understated. How is the answered determined to be about COGS and not Net Income when both answers are correct?
upvoted 1 times
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B (20%)
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