Two separate errors affected Satellite City in 2019. The beginning inventory was understated by $28,000 and the ending inventory was understated by $43,000. Net income in 2019 will be:

Question

Quizplus · Accepted Answer

The net income is affected by the difference between the beginning and ending inventory errors. If the beginning inventory is understated, it means the cost of goods sold (COGS) is overstated, which would decrease net income. Conversely, if the ending inventory is understated, COGS is also overstated, further decreasing net income. The net effect on net income is the difference between the ending and beginning inventory errors: $43,000 - $28,000 = $15,000 understated.

Two Separate Errors Affected Satellite City in 2019