In 2015,ending inventory is overstated.What is the effect of the error on net income in 2015 and 2016?

Question

Quizplus · Accepted Answer

Since the ending inventory is overstated in 2015, it will result in a higher cost of goods sold (COGS) and, as a consequence, a lower net income in 2015. Conversely, in 2016, when the overstated inventory is sold, it will result in a lower COGS and a higher net income. Therefore, net income is overstated in 2015 and understated in 2016, making option A the correct answer.

In 2015,ending Inventory Is Overstated