On June 15, 2014 Stine Corporation accepted delivery of merchandise which it purchased on account. As of June 30 Stine had not recorded the transaction or included the merchandise in its inventory. The effect of this error 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 and liabilities were understated but stockholders' equity was not affected.
D) assets and stockholders' equity were understated but liabilities were not affected.

Question

Quizplus · Accepted Answer

Assets would be understated because the inventory was not recorded, and liabilities would be understated because the payable associated with the purchase was not recorded. Stockholders' equity would not be directly affected by this transaction.

On June 15, 2014 Stine Corporation Accepted Delivery of Merchandise