Merchandise inventory at the end of the year is overstated.Which of the following statements correctly states the effect of the error?
A)stockholders' equity is overstated
B)cost of merchandise sold is overstated
C)gross profit is understated
D)net income is understated

Question

Quizplus · Accepted Answer

When merchandise inventory is overstated, it leads to an understatement of the cost of goods sold, which results in an overstatement of gross profit and net income. Consequently, stockholders' equity is also overstated due to the inflated net income.

Merchandise Inventory at the End of the Year Is Overstated