If ending inventory is understated in 2014, the 2015 ending owner's equity will be
A) understated.
B) overstated.
C) correct.
D) Owner's equity is never affected by an inventory error.

Question

Quizplus · Accepted Answer

An understatement of ending inventory in 2014 will cause the 2014 cost of goods sold to be overstated, reducing net income and owner's equity for 2014. However, the 2015 beginning inventory will also be understated, which will correct the error in 2015, resulting in the correct owner's equity by the end of 2015.

If Ending Inventory Is Understated in 2014, the 2015 Ending