Final answer:
Overstating ending inventory leads to understated COGS and hence overstated net income and retained earnings. This results in higher stockholder's equity in the current period. However, this is a temporary effect and will reverse when the error is corrected.
Step-by-step explanation:
The question pertains to the effects of overstating ending inventory on stockholder's equity within the current accounting period. When the ending inventory is overstated, the cost of goods sold (COGS) is understated. This results in higher net income since COGS is deducted from revenue to determine net income. An inflated net income leads to an overstated retained earnings, as part of the stockholder's equity section in the balance sheet.
The stockholder's equity is affected because retained earnings, which are a cumulative measure of a company's net income minus dividends, increase when net income is overstated. Stockholder's equity will correspondingly show a higher value in the current period, reflecting this change in retained earnings. However, it is important to note this effect is temporary; once the inventory is corrected in a future period, the prior overstatement will reverse and reduce stockholder's equity by the amount it was initially overstated.