Question

On the income statement, if beginning inventory is understated, then gross profit will be __________ and net income will be __________. overstated; overstated understated; understated overstated; understated understated; overstated

Answer 1

Gross Profit will be overvalued.

Net Income will be Overvalued.

Step-by-step explanation:

If beginning inventory is understated, the cost of sales will be also understated for that period. A lower / Understated Cost of Sales provides for an overstated Gross Profit and Overstated Profit.