At the end of 2019,a $5,000 understatement was discovered in the 2019 ending inventory as reflected in the inventory records.What were the 2019 effects of the $5,000 inventory error (before correction)?
A)Assets were understated by $5,000 and pretax income was understated by $5,000.
B)Assets were understated by $5,000 and pretax income was overstated by $5,000.
C)Cost of goods sold was understated by $5,000 and pretax income was understated by $5,000.
D)Cost of goods sold was overstated by $5,000 and pretax income was overstated by $5,000.

Question

Quizplus · Accepted Answer

When ending inventory is understated by $5,000, assets (inventory) are understated by the same amount. This also causes cost of goods sold (COGS) to be overstated, leading to an understatement of pretax income by $5,000.

At the End of 2019,a $5,000 Understatement Was Discovered in the 2019