An understatement of reported net income for the current year would result from
A) an overstatement of ending inventory in the previous period.
B) an overstatement of ending inventory in the current period.
C) failure to record accrued payroll liabilities.
D) failure to record expiration of prepaid insurance.

Question

Quizplus · Accepted Answer

An overstatement of ending inventory in the previous period would result in an understatement of cost of goods sold in the current period, which would lead to an overstatement of net income. To correct this error, the net income for the current period would need to be understated.

An Understatement of Reported Net Income for the Current Year