On June 25, Veranda Corp. accepted delivery of merchandise that it purchased on account. As at June 30, Veranda had NOT recorded the transaction nor included the merchandise in its inventory. The effect of this on Veranda's June 30 statement of financial position would be
A) assets and shareholders' equity were overstated but liabilities were not affected.
B) shareholders' equity was the only item affected by the omission.
C) assets, liabilities, and shareholders' equity were understated.
D) assets and liabilities were understated but shareholders' equity was not affected.

Question

Quizplus · Accepted Answer

Since Veranda did not record the transaction or include the merchandise in its inventory, both assets and liabilities were understated. However, shareholders' equity was not affected as no corresponding entry was made to it. Therefore, the correct option is D.