Hollander Company Hired Some Students to Help Count Inventory During

question 125

Multiple Choice

Hollander Company hired some students to help count inventory during their semester break. Unfortunately, the students added incorrectly and the 2016 ending inventory was overstated by $5,000. What would be the effect of this error in ending inventory?

• A)2016 net income would be overstated.
• B)2016 net income would be understated.
• C)2016 ending retained earnings would be understated.
• D)2016 cost of goods sold would be overstateD.The overstatement of the ending inventory causes cost of goods sold to be understated and net income to be overstated.

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Definitions:

Partial Billings

The process of issuing invoices for a fraction of the total amount of a contract or project before its completion.

Gross Profit

The difference between sales revenue and the cost of goods sold (COGS), indicating the profit made before deducting operating expenses.

Construction Costs

Expenses related directly to the construction of a building or infrastructure project, including materials, labor, and overhead.

Estimated Costs

Projected expenses related to the manufacturing of a product, execution of a project, or delivery of a service.