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R&R Equipment Company is preparing its annual financial statements in anticipation of applying for a loan

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R&R Equipment Company is preparing its annual financial statements in anticipation of applying for a loan. During the last week of the year, R&R received a shipment of inventory but has not paid for it. The invoice indicates that R&R owes $5,000 for the purchase. The owner of R&R, Randy Ray, has decided to omit this asset and the related liability from the year-end balance sheet, reasoning that it is okay because he is omitting both of them, which means there is no difference in owners' equity.

What is Randy's reasoning in your opinion?

Discuss circumstances under which Randy's decision would be acceptable under GAAP and circumstances under which it would definitely be unacceptable.

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This solution shows how to prepare an annual financial statement for the R&R Equipment Company.

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