The December 31, 2016, Ending Inventory Failed to Include $25,000

Multiple Choice

The December 31, 2016, ending inventory failed to include $25,000 of inventory that was received on December 27,
2016. The purchase on account was, however, properly recorded on the date of delivery. What effect will this error have on the December 31, 2016, assets, liabilities, and net income for the year then ended? $$\begin{array} { l l l l } & \text { Assets } & \text { Liabilities } & \text { NetIncome } \\\hline\text { I. } & \text { overstated } & \text { overstated } & \text { no effect II. } \\& \text { understated } & \text { understated } & \text { no effect } \\\text { III. } & \text { understated } & \text { no effect } & \text { understated } \\\text { IV } & \text { understated } & \text { understated } & \text { understated }\end{array}$$

A) I
B) II
C) III
D) IV