Beginning inventory for the year ended December 31, 2011, is understated. How will this error affect net income for 2011 and 2012?

Question

Quizplus · Accepted Answer

Since beginning inventory for 2011 was understated, the cost of goods sold for 2011 was overstated, which in turn understates net income for 2011. However, in 2012, when the beginning inventory is corrected, cost of goods sold will be lower, which will overstate net income for 2012.

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