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 the ending inventory will result in understating the cost of goods sold, which will lead to an overstatement of net income. Therefore, correcting for the error by reducing ending inventory by $2,700 will result in an increase in cost of goods sold by $2,700 and a decrease in net income by $2,700. This is reflected in option B.

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