During her first year with the company,Ann mistakenly accumulated some of the company's period costs in ending inventory.Which of the following indicates how this error affects the company's financial statements assuming number of units produced exceeded number of units sold during the period?
A) Cash flows from operations are understated.
B) Gross margin is unaffected.
C) Net income is overstated.
D) Inventory is understated.

Question

Quizplus · Accepted Answer

Since period costs are not included in the cost of goods sold, mistakenly including them in ending inventory will overstate the value of inventory and thus overstate net income. This error will not impact cash flows from operations nor gross margin. Inventory would be overstated, not understated.

During Her First Year with the Company,Ann Mistakenly Accumulated Some