Ending inventory for the year ended December 31, 2011, is understated by $8,000. How will this error affect net income for 2012?

Question

Quizplus · Accepted Answer

An understatement of ending inventory in 2011 means that the cost of goods sold was overstated, reducing net income for 2011. In 2012, the beginning inventory will be understated, leading to an understatement of the cost of goods sold and thus an overstatement of net income by $8,000.

Ending Inventory for the Year Ended December 31, 2011, Is