If ending inventory in Period 1 is overstated, gross profit in Period 2 is:
A)overstated.
B)understated.
C)not affected.
D)the same as in Period 1.

Question

Quizplus · Accepted Answer

Overstating ending inventory in Period 1 would lead to understating cost of goods sold in Period 1. This would result in overstating gross profit in Period 1. However, because the overstated inventory would be carried forward to Period 2, there would be a corresponding understatement of cost of goods sold and overstated gross profit in Period 2.

If Ending Inventory in Period 1 Is Overstated, Gross Profit