Wynn Corporation's 2013 ending inventory was overstated by $20,000; however, ending inventory for 2014 was correct. Which of the following statements is correct?

Question

Quizplus · Accepted Answer

The overstatement of ending inventory in 2013 leads to an understatement of cost of goods sold for 2013, which increases net income for that year. In 2014, the beginning inventory is overstated, leading to an overstatement of cost of goods sold, which decreases net income for 2014. However, by the end of 2014, retained earnings are correctly stated as the error self-corrects.

Wynn Corporation's 2013 Ending Inventory Was Overstated by $20,000; However