Phipps Corporation overstated its ending inventory on December 31,Year 1.Which of the following correctly identifies the effect of the error on Year 2 financial statements?
A)Cost of goods sold is overstated.
B)Gross margin overstated.
C)Ending inventory is understated.
D)Net income is overstated.

Question

Quizplus · Accepted Answer

Overstating inventory at the end of Year 1,but correctly reporting inventory at the end of Year 2,will cause cost of goods sold to be understated for Year 1 and overstated for Year 2.This error will not impact the amount of inventory reported at the end of Year 2.

Phipps Corporation Overstated Its Ending Inventory on December 31,Year 1