A $25,000 overstatement of the 2019 ending inventory was discovered after the financial statements for 2019 were prepared.Which of the following describes the effect of the inventory error on the 2019 financial statements?
A)Current assets were overstated and net income was understated.
B)Current assets were understated and net income was understated.
C)Current assets were overstated and net income was overstated.
D)Current assets were understated and net income was overstated.

Question

Quizplus · Accepted Answer

An overstatement of ending inventory results in an overstatement of current assets (since inventory is a current asset) and an overstatement of net income (since the cost of goods sold is understated, leading to higher income).

A $25,000 Overstatement of the 2019 Ending Inventory Was Discovered