On June 15, 2014, Wynne Corporation accepted delivery of merchandise which it pur-chased on account. As of June 30, Wynne had not recorded the transaction or included the merchandise in its inventory. The effect of this on its balance sheet for June 30, 2014 would be
A) assets and stockholders' equity were overstated but liabilities were not affected.
B) stockholders' equity was the only item affected by the omission.
C) assets, liabilities, and stockholders' equity were understated.
D) assets and liabilities were understated but stockholders' equity was not affected.

Question

Quizplus · Accepted Answer

By not recording the transaction or including the merchandise in its inventory, Wynne Corporation's assets (inventory) and liabilities (accounts payable) are understated because the merchandise that should have been added to inventory is not reflected, and the obligation to pay the supplier is not recorded. Stockholders' equity is not directly affected by this transaction omission.

On June 15, 2014, Wynne Corporation Accepted Delivery of Merchandise