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Which of the following is false about inventory errors for a given year? Multiple Choice If...

Which of the following is false about inventory errors for a given year? Multiple Choice If ending inventory is over-stated, cost of goods sold is over-stated. If ending inventory is over-stated, net income is under-stated. If ending inventory is over-stated, retained earnings is under-stated. None of the above statements are false. All of the above statements are false.

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Answer #1

Inventory Error: If error is incurred in inventory valuation than this will impact the Cost of Goods Sold of the period, Income statement of the period and retained earnings also.

If ending inventory is over-stated means inventory is shown at higher value. This will reduces the cost of goods sold and increases the gross profit. Once gross profit is increases than net income will be at higher side and retained earnings also be increases.

It means all the below given statements are false.

If ending inventory is over-stated, cost of goods sold is over-stated.

If ending inventory is over-stated, net income is under-stated.

If ending inventory is over-stated, retained earnings is under-stated.

Answer = Option 5 = All of the above statements are false

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