On December 27, Cloud Corp.accepted delivery of merchandise which it purchased on account.As of December 31, Cloud had recorded the transaction, but did not include the merchandise in its year-end inventory.The effect of this on its December 31 financial statements 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 an understatement of current assets and cost of goods sold, which results in understated net income and retained earnings.