A $15,000 overstatement of the 20B ending inventory was discovered after the financial statements for 20B were prepared.What was the effect of the inventory error on the 20B financial statements?
A)Current assets were overstated and profit was understated.
B)Current assets were understated and profit was understated.
C)Current assets were understated and profit was overstated.
D)Current assets were overstated and profit was overstated.

Question

Quizplus · Accepted Answer

The ending inventory is part of current assets, so an overstatement of inventory leads to an overstatement of current assets. Additionally, ending inventory affects the cost of goods sold and, consequently, the profit. An overstatement of ending inventory results in a lower cost of goods sold, which overstates profit.

A $15,000 Overstatement of the 20B Ending Inventory Was Discovered