Two separate errors affected Source Documenting in 20X3.The beginning inventory was overstated by $17,000 and the ending inventory was overstated by $23,000.Ignoring taxes,net income in 20X3 will be:
A)overstated by $40,000.
B)understated by $23,000.
C)overstated by $23,000.
D)overstated by $6,000.
E)understated by $40,000.

Question

Quizplus · Accepted Answer

The net income will be overstated by $6,000 because the overstatement of the beginning inventory increases the cost of goods sold (thus decreasing net income), while the overstatement of the ending inventory decreases the cost of goods sold (thus increasing net income). The net effect is an overstatement of net income by the difference between the two errors, which is $23,000 - $17,000 = $6,000.

Two Separate Errors Affected Source Documenting in 20X3