If ending inventory is overstated in 2014, then profit will be
A) overstated in 2014 and understated in 2015.
B) understated in 2014 and overstated in 2015.
C) overstated in both 2014 and 2015.
D) overstated in 2014 and correct in 2015.

Question

Quizplus · Accepted Answer

When ending inventory is overstated in 2014, the cost of goods sold (COGS) is understated, leading to an overstatement of profit in 2014. The overstatement of ending inventory in 2014 becomes an overstatement of beginning inventory in 2015, which will cause COGS to be overstated in 2015, leading to an understatement of profit in 2015.

If Ending Inventory Is Overstated in 2014, Then Profit Will