Question

The Zabel Company uses the periodic inventory system. Kelly Zabel, the CEO, believes that the ending inventory for 12/31/12 is understated by $12,000. Indicate whether the following statement relating to the above error is true or false. Net Income will be overstated in 2013 by $12,000. True or False

Answer 1

Yes

Step-by-step explanation:

A a lower opening inventory leads to a lower cost of sales, hence a higher net income while a lower closing inventory leads to a higher cost of sales and hence a lower net income.