Question

On December 31, 20xx, Jones Company understated ending inventory by $52,000. How does this error affect Cost of Goods Sold and Net Income for 20xx?
a.) Overstates Cost of Goods Sold and Net Income for 20xx?
b.) Overstates both COGS and Net Income
c.) Understates COGS and overstates Net Income
d.) Leaves both COGS and Net Income correct because the errors cancel each other

Answer 1

Overstates Cost of Goods Sold and understates Net Income

Explanation:

Ending inventory understated by $52000

This implies, the net income was understated by $52000, and cost of goods sold was overstated by $52000