An Analysis of a Company's Inventory Indicates That Inventory at the End

question 34

Multiple Choice

An analysis of a company's inventory indicates that inventory at the end of 2020 was understated by $30,000 due to an inventory count error. Inventory at the end of 2021 was correctly stated. The company uses the periodic system of inventory and its fiscal year-end is December 31. Given this information, which of the following statements is correct?

• A)The net income of 2020 is overstated and a retrospective correction should be made.
• B)The net income of 2021 is overstated and should be corrected.
• C)The 2021 year-end retained earnings are overstated and a prospective correction should be made.
• D)The net income of 2021 is understated and should be corrected.

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