If a Company Overstates Its Ending Inventory Balance for 2018 $\begin{array} { c c } \text { Effect on 2018 Net Income } & \text { Effect on 2017 Net Income } \\\end{array}$

question 71

Short Answer

If a company overstates its ending inventory balance for 2018 by $10,000 and overstates its ending inventory balance for 2017 by $5,000,what are the effects on its net income for 2018 and 2017 if neither error is corrected?
$\begin{array} { c c } \text { Effect on 2018 Net Income } & \text { Effect on 2017 Net Income } \\\end{array}$
a. $\begin{array} { c c } \text { Overstated by } \$ 15,000 & \text { Overstated by } \$ 10,000 \\\end{array}$
b. $\begin{array} { c c } \text { Understated by } \$ 5,000 & \text { Overstated by } \$ 10,000 \\\end{array}$
c. $\begin{array} { c c } \text {Overstated by } \$ 5,000 & \text { Overstated by } \$ 5,000 \\\end{array}$
d. $\begin{array} { c c } \text { Overstated by } \$ 10,000 & \text { Overstated by } \$ 5,000\end{array}$

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Definitions:

Dividends Paid

The total amount of dividend payments issued to shareholders during a particular period.

Consolidation Worksheet

A tool used in preparing consolidated financial statements that combines the financials of a parent company and its subsidiaries.

Operating Income

Income generated from regular business operations, excluding non-operating income and expenses, interest, and taxes.

Initial Value Method

An accounting technique where investments are recorded at their original purchase cost, without subsequent adjustment for increases or decreases in value.