If the ending inventory is overstated in the current year:
A)Net income will be understated in the current year.
B)Next year's beginning inventory will also be overstated.
C)Next year's net income will be overstated.
D)Next year's beginning inventory will be understated.

Question

Quizplus · Accepted Answer

When the ending inventory is overstated in the current year, it means that the cost of goods sold (COGS) is understated, leading to an overstatement of net income. However, since the ending inventory of one year becomes the beginning inventory of the next year, next year's beginning inventory will also be overstated, not affecting the net income directly in the statement.

If the Ending Inventory Is Overstated in the Current Year