Assume that a purchase invoice for $1,000 was appropriately recorded in fiscal 2016,but the inventory was excluded in error during the ending inventory count.What impact will this have on fiscal 2016 financial reporting?
A)Cost of goods sold is understated by $1,000.
B)Gross margin is overstated by $1,000.
C)Ending inventory is understated by $1,000.
D)Net income is overstated by $1,000.

Question

Quizplus · Accepted Answer

Since the inventory was excluded in error during the ending inventory count, it means that the ending inventory is understated by $1,000. This, in turn, affects the calculation of cost of goods sold and gross margin for fiscal 2016. However, it does not impact net income as net income is calculated after deducting expenses such as cost of goods sold.

Assume That a Purchase Invoice for $1,000 Was Appropriately Recorded