If gross profit is overstated in Period 1, then the ending inventory and net income in Period 1 were respectively:
A)overstated, and understated.
B)overstated, and overstated.
C)understated, and overstated.
D)understated, and understated.

Question

Quizplus · Accepted Answer

Overstating gross profit would also lead to an overstatement of net income because gross profit is a direct component of net income. Similarly, ending inventory would be overstated because the cost of goods sold (COGS) is understated, leaving more value in inventory.

If Gross Profit Is Overstated in Period 1, Then the Ending