A $25,000 Overstatement of the 2018 Ending Inventory Was Discovered

question 48

Multiple Choice

A $25,000 overstatement of the 2018 ending inventory was discovered after the financial statements for 2018 were prepared.Which of the following describes the effect of the inventory error on the 2019 financial statements?

• A)Net income and stockholders' equity are both understated.
• B)Net income is understated and stockholders' equity is correct.
• C)Net income and stockholders' equity are both overstated.
• D)Net income and stockholders' equity are both unaffected.

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Definitions:

Salaries Payable

An account that represents the total amount of wages earned by employees, but not yet paid by the employer.

Payroll Register

A document that records the payment details of a company's employees, including wages, deductions, and net pay.

Monthly Payroll

The total amount of money paid by a business to its employees in a month, encompassing wages, salaries, and other compensations.

Salaries Payable

A liability account that records the amount of salaries due but not yet paid to employees.