Cross Co.accepted delivery of merchandise which it purchased on account.As of December 31, Cross had recorded the transaction, but did not include the merchandise in its inventory.The effect of this on its financial statements for December 31 would be
A)net income, current assets, and retained earnings were understated.
B)net income was correct and current assets were understated.
C)net income was understated and current liabilities were overstated.
D)net income was overstated and current assets were understated.

Question

Quizplus · Accepted Answer

The merchandise was not included in inventory, leading to understated current assets. Since the cost of goods sold would be overstated, net income and retained earnings would also be understated.

Cross CoAccepted Delivery of Merchandise Which It Purchased on Account