A $25,000 overstatement of the 2014 ending inventory was discovered after the financial statements for 2014 were prepared. Which of the following describes the effect of the inventory error on the 2014 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 would overstate current assets and overstate net income. Therefore, the correct answer is C, as it states that current assets were overstated and net income was overstated.

A $25,000 Overstatement of the 2014 Ending Inventory Was Discovered