Question

which of the following financial statement line items will be affected if the ending inventory is overstated? (check all that apply.) multiple select question. current liabilities will be overstated. net income will be understated. current assets will be overstated. cost of goods sold will be overstated. net income will be overstated. cost of goods sold will be understated.

Answer 1

If the ending inventory is overstated, it will affect multiple financial statement line items. Current liabilities will be overstated, net income will be understated, and cost of goods sold will be overstated.

Step-by-step explanation:

If the ending inventory is overstated, it means that the value of inventory is reported higher than its actual value. This will lead to several financial statement line items being affected.

Current liabilities will be overstated because the inventory value is used in calculating the current ratio, which compares current assets to current liabilities.

Net income will be understated since an overstated ending inventory will result in a lower cost of goods sold (COGS) and, consequently, a lower gross profit.

Cost of goods sold will be overstated because an inflated ending inventory value will result in a lower amount of inventory being assigned to COGS.