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If the ending inventory of a firm is overstated by $57,000, by how much and in what direction (overstated or understated) will the firm's operating income be misstated? (Hint: Use the cost of goods sold model, enter hypothetically "correct" data, and then reflect the effects of the ending inventory error and determine the effect on cost of goods sold.)

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TomShelby

Answer:

57,000 overstated

Explanation:

the inventory identity is as follows:

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

Beginning invenotry and purchases cannot be alter as they are past measurement.

The impact of the overstated inventory mkaes the cost of good sold be 57,000 dollar less therefore; net income is misstated by 57,000 as well.

Because the COGS decreases the income a lower COGS generates an overstated net income.

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