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Chapter 16 16-19 1.If ending inventory is understated, the effect is to a.Overstate the net purchases b.Overstate the gross margin c.Overstate the cost of goods available for sale d.Overstate the COGS 2.If beginning inventory is overstated, the effect is to a.Overstate net purchases b.Overstate gross margin c.Overstate cost of goods available for sale d.Understate COGS 3.The overstatement of ending inventory in the current year will cause a.Retained earnings to be understated in the current year-end statement of financial position b.COGS to be understated in the income statement of next year c.COGS to be overstated in the income statement of the current year d.Statement of financial position not to be misstated in the next year-end 4.At the middle of the year, an entity paid for insurance premium for the current year and debited the amount to prepaid insurance. At year-end, the bookkeeper forgot to record the amount expired. In the financial statements prepared at year-end, the omission a.Overstates owner’s equity b. Understates assets c.Understates net income d.Overstates liabilities 5.If at the end of current reporting period, an entity erroneously excluded some goods from ending inventory and also erroneously did not record the purchase of these goods, these errors would cause a.The ending inventory to be overstated b.The retained earnings to be understated c.No effect on net income, working capital and retained earnings d.Net income to be understated 6.When the current year’s ending inventory is overstated a.The current year’s cost of goods sold is overstated b.The current year’s total assets are understated c.The current year’s net income is overstated d.The next year’s net income is overstated Why is this page out of focus?This is a Premium document. Become Premium to read the whole document. Why is this page out of focus?This is a Premium document. Become Premium to read the whole document. Why is this page out of focus?This is a Premium document. Become Premium to read the whole document. What happens to cost of goods sold when ending inventory is understated?Understated inventory, on the other hand, increases the cost of goods sold. Lower inventory volume in the accounting records reduces the closing stock and effectively increases the COGS.
What happens if the ending inventory is understated?Answer and Explanation: If ending inventory is understated, net income will also be understated. If ending inventory is understated, that means that the cost of goods sold, which is an expense, is overstated. As a result, net income will be understated.
Which of the following results when current years ending inventory is understated?If ending inventory is understated, then cost of goods sold would be overstated. This results in net income and retained earnings being understated. Likewise, current assets (ending inventory) would be understated due to the omission of merchandise.
When the current year's ending inventory is overstated the current year's cost of goods sold is overstated?The correct option is (c) the current year's net income is overstated. So, if the ending inventory is overstated, we will reduce the overstated amount while calculating the cost of goods sold. Therefore the cost of goods sold will be understated, and thus the net income will be overstated.
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Which would result if the current years ending inventory is understated in the cost of goods sold calculation?
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