Question

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? Multiple Choice Cost of goods sold is overstated. Gross margin overstated. Ending inventory is understated. Net income is overstated.

Answer 1

Answer:

Cost of goods sold is overstated.

Explanation:

Since in the question it is mentioned that the ending inventory is overstated on December 31, Year 1 financial statements due to which the effect of this error results in the financial statements on year 2 is the overstated of the cost of goods sold

Hence, the first option is right

Therefore, the other options are wrong