Hollander Company hired some students to help count inventory during their semester break. Unfortunately, the students added incorrectly and the 2016 ending inventory was overstated by $5,000. What would be the effect of this error in ending inventory?
A)2016 net income would be overstated.
B)2016 net income would be understated.
C)2016 ending retained earnings would be understated.
D)2016 cost of goods sold would be overstateD.The overstatement of the ending inventory causes cost of goods sold to be understated and net income to be overstated.

Question

Quizplus · Accepted Answer

Overstating the ending inventory would result in an overstatement of assets and an understatement of cost of goods sold, leading to an overstatement of net income. Therefore, the correct choice is A.

Hollander Company Hired Some Students to Help Count Inventory During