A company uses the periodic inventory method. If beginning inventory is understated by $10,000 because the prior’s year’s ending inventory was understated by $10,000. The company’s ending inventory for this period is correct. The effect of this error in the current period is that (i) cost of goods sold is ___________ and (ii) net income is __________.a. (i) Overstated and (ii) Overstatedb. (i) Understated and (ii) Understatedc. (i) Overstated and (ii) Understatedd. None of thesee. (i) Understated and (ii) Overstated
Cost of good sold is the addition of Opening stock to the purchases and subtracting closing stock, the omission of $10,000 will reduce it. Invariably a reduction in cost of sales will overstate income.
