Question

Marshall company discovers in 2014 that its ending inventory at december 31, 2013 was $5,000 understated. what effect will this error have on (a) 2013 net income, (b) 2014 net income, and (c) the combined net income for the 2 years

Answer 1

Answer: Cost of goods sold = Beginning inventory + Purchases - Ending inventory 2013 Ending inventory 5000 understated, COGS is overstated and net income is understated by 5000 2014 Beginning inventory is understated, COGS is understated, and net income is overstated 5000 Combined the beginning inventory for 2013 and the ending inventory for 2014 are correct so no effect on net income.