In 2017, beginning inventory is overstated. What is the effect of the error on total stockholders' equity in 2018?

Question

Quizplus · Accepted Answer

The overstatement of beginning inventory in 2017 would overstate cost of goods sold and understate net income for 2017, reducing stockholders' equity. However, this error would self-correct in 2018, as the ending inventory of 2017 becomes the beginning inventory of 2018, thus having no effect on total stockholders' equity in 2018.

In 2017, Beginning Inventory Is Overstated