If Diamond,Inc.overstates its ending inventory balance for 2018 by $10,000 and understates its ending inventory balance for 2017 by $5,000 what are the effects on its net income for 2018 and 2017 if either error is corrected?
$\begin{array}{rrr}
\text { Effect on 2018 Net Income } & & \text { Effect on 2017 Net Income } \\end{array}$
a. $\begin{array}{rrr}\text { Overstated by } \$ 15,000 & & \text { Understated by } \$ 10,000 \\end{array}$
b.$\begin{array}{rrr}\text { Understated by } \$ 5,000 && \text { Overstated by } \$ 10,000 \\end{array}$
c.$\begin{array}{rrr}\text { Overstated by } \$ 15,000 && \text { Understated by } \$ 5,000 \\end{array}$
d.$\begin{array}{rrr}\text { Overstated by } \$ 10,000 && \text { Understated by } \$ 5,000
\end{array}$

Question

If Diamond,Inc.overstates its ending inventory balance for 2018 by $10,000 and understates its ending inventory balance for 2017 by $5,000 what are the effects on its net income for 2018 and 2017 if either error is corrected?  
$\begin{array}{rrr}
\text { Effect on 2018 Net Income } & & \text { Effect on 2017 Net Income } \\end{array}$
a. $\begin{array}{rrr}\text { Overstated by } \$ 15,000 & & \text { Understated by } \$ 10,000 \\end{array}$
b.$\begin{array}{rrr}\text {  Understated by } \$ 5,000 && \text { Overstated by } \$ 10,000 \\end{array}$
c.$\begin{array}{rrr}\text {  Overstated by } \$ 15,000 && \text { Understated by } \$ 5,000 \\end{array}$
d.$\begin{array}{rrr}\text {  Overstated by } \$ 10,000 && \text { Understated by } \$ 5,000
\end{array}$

Quizplus · Accepted Answer

If Diamond, Inc. corrects the overstatement of ending inventory for 2018 by $10,000, it will decrease the cost of goods sold by $10,000 and increase the net income by $10,000.

If Diamond, Inc. corrects the understatement of ending inventory for 2017 by $5,000, it will increase the cost of goods sold by $5,000 and decrease the net income by $5,000.

Therefore, the total effect on net income for 2018 and 2017 is an overstatement of $15,000 and an understatement of $5,000.

Thus, the correct option is C.

If Diamond,Inc Effect on 2018 Net Income Effect on 2017 Net Income \begin{array}{rrr}\text { Effect on 2018 Net Income } & & \text { Effect on 2017 Net Income } \\\end{array} Effect on 2018 Net Income ​​ Effect on 2017 Net Income ​

If Diamond,Inc $\begin{array}{rrr}\text { Effect on 2018 Net Income } & & \text { Effect on 2017 Net Income } \\\end{array}$