Phipps Corporation Overstated Its Ending Inventory on December 31,Year 1

question 67

Multiple Choice

Phipps Corporation overstated its ending inventory on December 31,Year 1.Which of the following correctly identifies the effect of the error on Year 2 financial statements?

• A)Cost of goods sold is overstated.
• B)Gross margin overstated.
• C)Ending inventory is understated.
• D)Net income is overstated.

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Definitions:

Rotational Slide

A type of landslide characterized by the downhill rotation of rock or soil mass along a concave-upward surface.

Earth Flow

A flowing mass of weak, mostly fine-grained material, especially mud and soil.

Debris Flow

A fast-moving mass of loose mud, sand, soil, rock, and water that travels down slopes and valleys, often caused by heavy rain or rapid snowmelt.

Earth Flow

Earth flow, a type of mass wasting, involves the downslope movement of soil, sediment, or rock under the influence of gravity, often lubricated by water.