Determine the Effect on Cost of Goods Sold and Net

question 3

Essay

Determine the effect on cost of goods sold and net income for the current year of the following inventory errors. Indicate your answer with either a + (overstated)or a - (understated). $\begin{array} { | l | l | l | l | } \hline \text { Item } & { \text { Error } } & \begin{array} { c } \text { Effect on } \\\text { Cost } \\\text { of Goods Sold }\end{array} & \begin{array} { c } \text { Effect on } \\\text { Net Income }\end{array} \\\hline \text { 1) } & \text { Beginning inventory is overstated. } & & \\\hline \text { 2) } & \text { Ending inventory is understated. } & & \\\hline \text { 3) } & \text { Beginning inventory is understated. } & & \\\hline \text { 4) } & \text { Ending inventory is overstated. } & & \\\hline\end{array}$

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Definitions:

Foreign Exchange Market

A global decentralized or over-the-counter market for trading currencies, determining exchange rates for every currency.

U.S. Dollar

The United States' official money, commonly utilized worldwide as a standard and reserve currency.

Depreciates

Describes how an asset loses value over time due to wear and tear, age, or obsolescence.

Current Account Transactions

Economic activities that affect a nation's balance of payments, including trade in goods and services, earnings on investments, and transfer payments.