An understatement of reported net income for the current year would result from a. an overstatement...

An understatement of reported net income for the current year would result from

a. an overstatement of ending inventory in the previous period.

b. an overstatement of ending inventory in the current period.

c. failure to record accrued payroll liabilities.

d. failure to record expiration of prepaid insurance.

Expert Solution

Correct Answer is Option ‘A’ An Overstatement of ending inventory in the previous period would result in an understatement of reported in Net Income for Current Year.
This is because Overstated beginning inventory = Overstated Cost of Goods Sold. Since Cost will be overstated, the Net Income would be under-stated.

Other incorrect Options:
#b: Overstatement of ending inventory in current period = Overstated gross profit = Overstated net income

#c: Failure to record accrued liabilities = failure to record expenses = Overstated Net Income

#d: Failure to record insurance expired = failure to record insurance expense = Overstated Net Income

ekkarill92 answered 2 years ago

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