A $15,000 overstatement of the 2018 ending inventory was discovered after the financial statements for 2018 were prepared.How would that inventory error impact the 2018 financial status?
A)Current assets were overstated and net income was understated.
B)Current assets were understated and net income was understated.
C)Current assets were overstated and net income was overstated.
D)Current assets were understated and net income was overstated.

Question

Quizplus · Accepted Answer

Overstating ending inventory causes current assets to be overstated because inventory is a current asset. It also causes net income to be overstated because the cost of goods sold is understated (since ending inventory is part of the calculation), leading to higher profits.

A $15,000 Overstatement of the 2018 Ending Inventory Was Discovered