Accounting: What the Numbers Mean 9th Edition by Wayne W McManus, Daniel F Viele, David H Marshall

Exercise 18

Effects of inventory error If the ending inventory of a firm is overstated by $50,000, by how much and in what direction (overstated or understated) will the firm’s operating income be misstated? (Hint: Use the cost of goods sold model, enter hypothetically “correct” data, and then reflect the effects of the ending inventory error and determine the effect on cost of goods sold.)