Part I

Garrett Co. recorded goods in transit purchased f.o.b. shipping point at year-end as purchases. The good were excluded from ending inventory. What effect does this omission have on Garretts assets and net income at year end?

Multiple Choice

A. Assets are not affected and net income is understated.

B. Assets are understated and net income is understated.

C. Assets are understated and net income is not affected.

D. Assets are not affected and net income is overstated.

Part II

Maker Co. discovered that in the prior year it incorrectly calculated depreciation expense and reported $75,000 in depreciation expense instead of the correct depreciation expense of $50,000. The tax rate for the current year was 35%. What was the impact of the error on Makers financial statements for the prior period?

Multiple Choice

A.Overstatement of net income of $16,250.

B. Understatement of depreciation expense of $25,000.

C. Understatement of accumulated depreciation of $25,000.

D. Overstatement of accumulated depreciation of $25,000.