Question

Banana Company hired some students to help count inventory during their semester break. Unfortunately, the students added incorrectly and the 2020 ending inventory was overstated by $6,000. What would be the effect of this error in ending inventory?

Answer 1

Answer: a. 2020 net income will be overstated

Step-by-step explanation:

Ending Inventory is used in the calculation of Cost of Goods sold. It is subtracted from the Cost of Goods sold so if it is Overstated then that means that Cost of Goods sold is understated.

Cost of Goods sold is subtracted from Revenue to find income so if Cost of Goods sold is Understated then Net Income will be Overstated in turn.