Overstating ending inventory has the following effect on cost of goods sold and net income, respectively.
A) Overstated, overstated
B) Understated, overstated
C) Overstated, understated
D) No effect on either account

Question

Quizplus · Accepted Answer

Overstating ending inventory decreases the amount allocated to cost of goods sold. An understated cost of goods sold increases gross margin and in turn net income.

Overstating Ending Inventory Has the Following Effect on Cost of Goods