Will Company's independent accountant discovered that the ending inventory for 20B had been overstated by the company by $2,000. Before the correction, what was the effect in the 20B statement of earnings because of the overstatement of the ending inventory?
A) Pretax profit was understated by $2,000.
B) Cost of goods sold was overstated by $2,000.
C) Pretax profit was overstated and the cost of goods sold was understated by $2,000.
D) Pretax profit understated by $2,000.

Question

Quizplus · Accepted Answer

When ending inventory is overstated, the cost of goods sold is understated, leading to an overstatement of pretax profit.

Will Company's Independent Accountant Discovered That the Ending Inventory for 20B