BJ Company uses a periodic inventory system. If the company's beginning inventory in the current year is overstated, and that is the only error in the current year, then the company's income for the current year will be
A) understated and assets correct.
B) understated and assets overstated.
C) overstated and assets overstated.
D) understated and assets understated.

Question

Quizplus · Accepted Answer

If the beginning inventory is overstated, then the cost of goods sold will be understated, which will result in a higher net income. However, since assets are not affected by the error, they will remain correct. Therefore, the income will be understated, but assets will remain the same.

BJ Company Uses a Periodic Inventory System