Ending inventory for the current accounting period is overstated by $2,700. What effect will this error have on Cost of goods sold and Net income?

Question

Quizplus · Accepted Answer

Overstating ending inventory will result in understating cost of goods sold, since ending inventory is subtracted from cost of goods available for sale to determine cost of goods sold. As a result, net income will be overstated by the same amount as the ending inventory overstatement. Choice B correctly reflects this impact.

Ending Inventory for the Current Accounting Period Is Overstated by $2,700