Ending inventory for the year ended December 31,2019,is understated by $8,000.How will this affect net income for 2019 and 2020?

Question

Quizplus · Accepted Answer

The understatement of ending inventory by $8,000 in 2019 will result in an understatement of cost of goods sold and an overstatement of gross profit and net income for 2019 (assuming no other changes). When the error is corrected in 2020, there will be an overstatement of cost of goods sold and an understatement of gross profit and net income for 2020. Therefore, net income will be understated by $8,000 in 2019 and overstated by $8,000 in 2020, resulting in a net impact of zero over the two-year period.

Ending Inventory for the Year Ended December 31,2019,is Understated by $8,000.How