If the ending inventory is overstated in Year 1, then the Cost of Goods Sold will be overstated in Year 2.

Question

Quizplus · Accepted Answer

If the ending inventory is overstated in Year 1, it means that the cost of goods sold (COGS) for Year 1 is understated. Therefore, when calculating the COGS for Year 2, the overstated value of ending inventory from Year 1 will be carried forward, resulting in an overstatement of the COGS for Year 2.

If the Ending Inventory Is Overstated in Year 1, Then