Final answer:
An error in year 1's ending inventory carries over to year 2 because the ending inventory of one year serves as the beginning inventory for the next. The error affects the calculation of COGS and the subsequent ending inventory for year 2.
Step-by-step explanation:
The statement is true. An error in ending inventory in year 1 will indeed cause ending inventory in year 2 to be misstated as well. This is due to the connection between the ending inventory of one year and the beginning inventory of the following year. When ending inventory for year 1 is reported incorrectly, it becomes the beginning inventory for year 2, which is used in the calculation of the cost of goods sold (COGS) and, subsequently, the ending inventory for year 2. Therefore, any error in the ending inventory of year 1 carries over into year 2, affecting both COGS and the ending inventory amount.