The ending inventory of Bonie Company is understated in year one by $20,000. This error is not corrected in year one or in year two. What impact will this error have on total net income for years one and two combined?
A) No effect on total net income for the two years
B) Overstate total net income by $20,000
C) Understate total net income by $20,000
D) Overstate net income for year one by $20,000 and year two by $20,000 for a total overstatement of $40,000

Question

Quizplus · Accepted Answer

The understatement of ending inventory in year one will understate net income in year one but will overstate net income in year two by the same amount, thus having no effect on the total net income for the two years combined.

The Ending Inventory of Bonie Company Is Understated in Year