Merchandise Inventory at the End of the Year Was Inadvertently

Multiple Choice

Merchandise inventory at the end of the year was inadvertently overstated. Which of the following statements correctly states the effect of the error on net income, assets, and retained earnings?

A) net income is overstated, assets are overstated, retained earnings is understated
B) net income is overstated, assets are overstated, retained earnings is overstated
C) net income is understated, assets are understated, retained earnings is understated
D) net income is understated, assets are understated, retained earnings is overstated