Question

If ending inventory for the year ended December 31, 2016, is overstated by $25,000:

a) beginning inventory for 2017 will be understated by $25,000
b) net income for 2017 will be overstated by $25,000
c) ending inventory for 2017 will be understated by $25,000
d) net income for 2017 will be understated by $25,000

Answer 1

If ending inventory for the year ended December 31, 2016, is overstated by $25,000, the ending inventory for 2017 will be understated by $25,000. Option c

Step-by-step explanation:

If ending inventory for the year ended December 31, 2016, is overstated by $25,000, the correct statement is option c) ending inventory for 2017 will be understated by $25,000.

When the ending inventory for a year is overstated, it means that the value of inventory on the balance sheet is higher than the actual value. This overstatement will carry over to the beginning inventory for the next year, resulting in an understatement on the balance sheet.

Therefore, as a result of the overstatement in 2016, the ending inventory for 2017 will be understated by the same amount, $25,000. Option c