At the end of 2010,a $5,000 understatement was discovered in the amount of the 2010 ending inventory as reflected in the perpetual inventory records.What were the 2010 effects of the $5,000 inventory error (before correction)?
A)Assets were understated by $5,000 and pretax income was understated by $5,000.
B)Assets were understated by $5,000 and pretax income was overstated by $5,000.
C)Cost of goods sold was understated by $5,000 and pretax income was understated by $5,000.
D)Cost of goods sold was overstated by $5,000 and pretax income was overstated by $5,000.

Question

Quizplus · Accepted Answer

The understatement of the 2010 ending inventory causes the 2010 cost of goods sold to be overstated and the 2010 pretax income is therefore understated.

At the End of 2010,a $5,000 Understatement Was Discovered in the Amount