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If a company understates its count of ending inventory in Year 1, which of the following is true?-Costs of good sold is understated at the end of Year 1.-Profit is correct in Year 2.-The balance of retained earnings is overstated at the end of Year 1.-The balance of retained earnings is correct at the end of Year 2.

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TomShelby

Answer:

Costs of good sold is understated at the end of Year 1

Explanation:

From the inventory formula:

[tex]$Beginning Inventory + Purchase = Ending Inventory + COGS[/tex]

An understatment means, something worth $10 is being valued at $8 so if the count is understate the Ending Inventory  in the books is lower that the real ending iventory

We could build the following formula

if ending is undestated we got that

[tex]$Beginning Inventory + Purchase = Ending Inventory_{book}($ending inventory_{REAL} - $understament) +$COGS[/tex]

Now because of this, COGS needs to make up for the lower ending inventory so it will be understated as well, by the same amount.

marvineetesh3

Costs of goods sold(COGS) are the carrying value of goods sold during a particular period. This can be understated at the end of Year 1 If the company understates its count of ending inventory in Year 1.

What is the Cost Of Goods Sold(COGS)?

The cost of goods sold is the conducting value of goods sold during a particular period. Costs are related to particular goods using one of the various formulas, including specific identification, last-in-first-out, or average cost.

The formula of COGS is:

[tex]\text{COGS}= \text{Beginning Inventory+ Purchases+ Direct Expenses—Closing Inventory}[/tex]

COGS is determined If a company understates its count of ending inventory.

Therefore, option 1 is correct.

Learn more about COGS, refer to:

https://brainly.com/question/10205893

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