Assume that ending inventory in fiscal 2019 is overstated by $1,000.What impact will this have on fiscal 2019 financial reporting?
A)Retained earnings is overstated by $1,000.
B)Gross margin is understated by $1,000.
C)Cost of sales is overstated by $1,000.
D)Inventory is understated on the balance sheet.

Question

Quizplus · Accepted Answer

When ending inventory is overstated, it means that the cost of goods sold (COGS) is understated because the ending inventory is subtracted from goods available for sale to calculate COGS. This results in higher gross margin and net income, thereby overstating retained earnings.

Assume That Ending Inventory in Fiscal 2019 Is Overstated by $1,000.What