A Company Using a Periodic Inventory System Neglected to Record

Multiple Choice

A company using a periodic inventory system neglected to record a purchase of merchandise on credit at year end.This merchandise was omitted from the year end physical count.How will these errors affect assets,liabilities,owners' equity at year end and net earnings for the year? $$\begin{array} { | l | l | l | l | l | } \hline & & & \text { Owners' } & \text { Net } \\\hline & \text { Assets } & \text { Liabilities } & \text { Equity } & \text { Earnings } \\\hline 1 & \text { No effect } & \text { overstate } & \text { understate } & \text { understate } \\\hline 2 & \text { No effect } & \text { understate } & \text { overstate } & \text { overstate } \\\hline 3 & \text { Understate } & \text { no effect } & \text { understate } & \text { understate } \\\hline 4 & \text { Understate } & \text { understate } & \text { no effect } & \text { no effect } \\\hline\end{array}$$

A) Choice 1
B) Choice 2
C) Choice 3
D) Choice 4