Widner Company understated its inventory by $10,000 at December 31, 2010. It did not correct the error in 2010 or 2011. As a result, Widner's owner's equity was:

Question

Quizplus · Accepted Answer

The understatement of inventory in 2010 would cause owner's equity to be understated at December 31, 2010, because inventory is an asset and affects the calculation of net income. However, by December 31, 2011, the error would have self-corrected in the financial statements, as the beginning inventory for 2011 would be understated, leading to an understatement of cost of goods sold and an overstatement of net income, thus properly stating owner's equity.

Widner Company Understated Its Inventory by $10,000 at December 31