A $15,000 overstatement of the 2011 ending inventory was discovered after the financial statements for 2011 were prepared. How would that inventory error impact the 2011 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.

Question

Quizplus · Accepted Answer

The overstatement of ending inventory leads to an overstatement of current assets and net income because ending inventory is a component of both the balance sheet (as a current asset) and the income statement (affecting cost of goods sold and thus net income).

A $15,000 Overstatement of the 2011 Ending Inventory Was Discovered