Question

Cake Mart understated its ending inventory In the current year by $5,000. The company incorrectly reported net income of $100,000. Determine the effect of the error on the financial A. You think is right Total assets on the balance sheet will be too high by $5.000 B. Cost of goods sold was too low by $5,000, which cnused net income to be OverstatedC. Cost of goods sold wil be too high by $5.o00, and this coused net income to be understated by $5.000 D. Cost of goods sold will be too high by 55.000 and this cauted net income to b overstated by $5.000 No Idea

Answer 1

Answer:

C. Cost of goods sold will be too high by $5,000, and this caused net income to be understated by $5.000

Explanation:

In the given case, the ending inventory is understated by $5,000 that means the cost of goods sold is overstated by $5,000 which affect the net income by understating the amount of $5,000

As if the inventory part is affected, then it affects the cost of goods sold which finally impacted the net income. So, the correct net income would be $95,000 ($100,000 - $5,000)