JP Corporation had net income of $1,000,000 for 2020. After issuing its financial statements, the corporation realized that it had failed to include inventory from one of its small warehouses for two years. Specifically, it forgot to include $20,000 on December 31, 2019 and $30,000 on December 31, 2020. Which of the following is TRUE regarding JP's 2019 net income?
A)Net income was understated by $10,000.
B)Net income was overstated by $10,000.
C)Net income was understated by $30,000.
D)Net income was overstated by $30,000.

Question

Quizplus · Accepted Answer

The $20,000 inventory omission on December 31, 2019 means that the cost of goods sold was overstated, leading to an understatement of net income by $20,000 for 2019.

JP Corporation Had Net Income of $1,000,000 for 2020