Zebra Company overstated its December 31,2017,inventory by $5,200.Which of the following statement is true concerning Zebra's financial statement amounts for 2017?
A)Retained earnings are understated.
B)Gross profit is overstated.
C)Cost of goods sold is overstated.
D)Net income is understated.

Question

Quizplus · Accepted Answer

When inventory is overstated, it leads to a lower cost of goods sold (COGS), which in turn results in higher gross profit and net income for the period. Therefore, the statement that gross profit is overstated is true.

Zebra Company Overstated Its December 31,2017,inventory by $5,200