A company recorded an acquisition of merchandise and its related liability, but failed to include the merchandise in ending inventory. The effect on the financial statements was to
A) understate liabilities.
B) understate net income.
C) overstate net income.
D) have no impact on the financial statements since the errors cancel each other out.

Question

Quizplus · Accepted Answer

The failure to include merchandise in ending inventory results in an understatement of inventory, which leads to an overstatement of cost of goods sold and, consequently, an understatement of net income.

A Company Recorded an Acquisition of Merchandise and Its Related