Assume that ending inventory in fiscal 2016 is overstated by $1,000.What impact will this have on fiscal 2016 financial reporting?
A)Retained earnings is overstated by $1,000.
B)No effect on inventory value on the balance sheet.
C)No effect on retained earnings.
D)Inventory is understated on the balance sheet.

Question

Quizplus · Accepted Answer

Ending inventory is a part of the calculation of cost of goods sold which directly impacts net income. If ending inventory is overstated, cost of goods sold will be understated, which in turn will overstate net income. As retained earnings is a part of net income, it will also be overstated.

Assume That Ending Inventory in Fiscal 2016 Is Overstated by $1,000.What