Zebra Company overstated its December 31, 2016 inventory by $5,200.Which statement is true concerning Zebra's financial statement amounts for 2016?
A) The current ratio is overstated.
B) Cost of goods sold is overstated.
C) Working capital is understated.
D) Net income is understated.

Question

Quizplus · Accepted Answer

Overstating inventory leads to an overstatement of both current assets and total assets, which in turn overstates the current ratio since the current ratio is calculated as current assets divided by current liabilities.

Zebra Company Overstated Its December 31, 2016 Inventory by $5,200