A $25,000 overstatement of the 2016 ending inventory was discovered after the financial statements for 2016 were prepared. Which of the following describes the effect of the inventory error on the 2016 financial statements?
A)Current assets were overstated and net income was understated.
B)Current assets were understated and net income was understated.
C)Current assets were overstated and net income was overstated.
D)Current assets were understated and net income was overstateD.An overstatement of ending inventory overstates current assets and understates cost of goods sold and therefore overstates net income.

Question

Quizplus · Accepted Answer

An overstatement of ending inventory overstates current assets and understates cost of goods sold, which leads to an overstatement of net income. Therefore, in this case, current assets were overstated and net income was overstated.

A $25,000 Overstatement of the 2016 Ending Inventory Was Discovered