Regan Company
Regan Company reported net income of $95,000 for 2013. Early in 2014, the company discovered that its 2013 ending inventory was overstated by $5,000.
-Refer to the information provided for Regan Company. Determine the financial statement effects of the inventory error for 2014.

Question

Quizplus · Accepted Answer

The inventory error from 2013 affects the cost of goods sold (COGS) for that year, and since COGS is an expense, it will be overstated by $5,000. As a result, net income for 2013 will be understated by $5,000. However, this error will only be discovered in 2014, so the company will need to make an adjusting entry to correct the error in 2014. This means that expenses will be overstated by $5,000 in 2014, and net income will be understated by the same amount. Therefore, choice B is the correct answer.

Regan Company Regan Company Reported Net Income of $95,000 for 2013. Early