Fred received merchandise on consignment from Dino.As of January 31, Fred included the goods in inventory, but did NOT record the transaction.The effect of this on Fred's financial statements for January 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, current assets, and retained earnings were overstated.
D)net income and current assets were overstated and current liabilities were understated.

Question

Quizplus · Accepted Answer

Since Fred did not record the consigned goods, both current assets and inventory will be understated, resulting in an overstatement of net income and retained earnings. Therefore, the correct answer is option C. Current liabilities will not be affected by this transaction as they are not related.

Fred Received Merchandise on Consignment from Dino