State the Effects of Inventory Errors on Cost of Goods

question 3

Essay

State the effects of inventory errors on cost of goods sold and net income for periods 1 and 2.The response should be overstated or understated.
Period 1 Ending Merchandise Inventory is overstated

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Definitions:

Gross Investment

The total amount of money spent on capital goods, or assets that will provide productive capacity for the future, without deducting for depreciation.

Depreciation

The process of allocating the cost of a tangible asset over its useful life, reflecting the decrease in value over time.

Capital Stock

The total value of all physical assets owned by a company that are used in producing goods and services.

Interest Rate

The percentage charged or paid for the use of money, typically expressed as an annual rate on loans or earned on deposits.