If ending inventory is understated by $7,000 in 20X3,and assuming a constant 30% tax rate,then what will be the effect on gross profit in 20X3?
A)20X3 gross profit will be understated by $2,100.
B)20X3 gross profit will be understated by $4,900.
C)20X3 gross profit will be overstated by $4,900.
D)20X3 gross profit will be understated by $7,000.
E)20X3 gross profit will be overstated by $7,000.

Question

Quizplus · Accepted Answer

If ending inventory is understated, the cost of goods sold (COGS) will be overstated, leading to an understatement of gross profit. The tax rate does not directly affect the calculation of gross profit, so the entire $7,000 understatement affects gross profit.

If Ending Inventory Is Understated by $7,000 in 20X3,and Assuming