Question

If year 1 ending inventory is overstated by $1,000, then the year 2 _____________. (check all that apply)

1) ending inventory will be overstated by $1,000
2) beginning inventory will be overstated by $1,000
3) goods available for sale will be overstated by $1,000

Answer 1

If year 1 ending inventory is overstated by $1,000, then in year 2, the beginning inventory will be overstated by the same amount. This overstatement does not directly affect the ending inventory or goods available for sale for year 2, unless there are additional errors.

Step-by-step explanation:

If year 1 ending inventory is overstated by $1,000, then the year 2 beginning inventory will be overstated by $1,000. This is because the ending inventory of one year is carried forward to become the beginning inventory of the next year. Therefore, if there's an overstatement in year 1, it directly affects the following year's beginning balance.

However, this overstatement would not directly affect year 2's ending inventory unless there is another error in accounting during year 2. The goods available for sale in year 2 would not be directly impacted by the overstatement in the previous year's ending inventory. The goods available for sale are a function of the beginning inventory plus net purchases during the year, and while the beginning inventory is overstated, the goods available for sale are not, unless year 2 purchases are also misstated.