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Rudiy27
3 years ago
9

If a company understates its count of ending inventory in Year 1, which of the following is true?-Costs of good sold is understa

ted 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.
Business
1 answer:
bogdanovich [222]3 years ago
5 0

Answer:

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

Explanation:

From the inventory formula:

$$Beginning Inventory + Purchase = Ending Inventory + COGS

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

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

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.

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