Assume that ending inventory in fiscal 2019 is overstated by $1,000.What impact will this have on fiscal 2020 financial reporting?
A)Retained earnings is overstated by $1,000.
B)Retained earnings is understated by $1,000.
C)The retained earnings will be correctly stated.
D)Inventory is understated on the balance sheet.

Question

Quizplus · Accepted Answer

If ending inventory in fiscal 2019 is overstated by $1,000, it means that the cost of goods sold (COGS) is understated for that year, leading to an overstatement of net income. Since net income contributes to retained earnings, retained earnings will be overstated by $1,000 going into fiscal 2020.

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