On June 15, 2019, Wynne Corporation accepted delivery of merchandise which it
Purchased 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 statement of financial position for June 30, 2019 would be
A) assets and equity were overstated but liabilities were not affected.
B) equity was the only item affected by the omission.
C) assets, liabilities, and equity were understated.
D) None of these answers are correct.

Question

Quizplus · Accepted Answer

Since the merchandise has not been recorded, it means that the inventory is understated, which in turn affects the cost of goods sold and gross profit. This ultimately leads to an understatement of both assets and equity. Additionally, there is no effect on liabilities since the purchase was made on account, which means the liability was already recognized at the time of purchase.

On June 15, 2019, Wynne Corporation Accepted Delivery of Merchandise