Which of the following is correct when,in the same year,beginning inventory is understated by $1,300 and ending inventory is understated by $700?
A)Net income is understated by $600.
B)Net income is understated by $2,000.
C)Net income is overstated by $600.
D)Net income is overstated by $2,000.

Question

Quizplus · Accepted Answer

Beginning inventory understatement will affect Cost of Goods Sold, which will be overstated by $1,300. Ending inventory understatement will also affect Cost of Goods Sold, which will be understated by $700. Therefore, overall Cost of Goods Sold will be overstated by $600 ($1,300 - $700 = $600). Since Cost of Goods Sold is subtracted from revenue to calculate net income, overstating Cost of Goods Sold will result in understating net income by the same amount. Therefore, net income is understated by $600.

Which of the Following Is Correct When,in the Same Year,beginning