If beginning inventory is understated by $1,300 and ending inventory is understated by $700, pretax profit for the period will be which of the following?
A) Overstated by $600.
B) Overstated by $2,000.
C) Understated by $2,000.
D) Understated by $600.

Question

Quizplus · Accepted Answer

The understatement of beginning inventory increases the cost of goods sold by $1,300, reducing profit. The understatement of ending inventory decreases the cost of goods sold by $700, increasing profit. The net effect is a $600 overstatement of profit ($1,300 - $700 = $600).

If Beginning Inventory Is Understated by $1,300 and Ending Inventory