Clover Company, a corporation using a periodic inventory system, made undiscovered errors in taking its year-end inventories that overstated year 1 ending inventory by $320,000 and overstated year 2 ending inventory by $240,000. The combined effect of these errors on reported income is: Select one: A. Year 1 Year 2 Year 3 Overstated Understated Understated $320,000 $80,000 $240,000 B. Year 1 Year 2 Year 3 Overstated Overstated Not affected $320,000 $240,000 --- C. Year 1 Year 2 Year 3 Overstated Overstated Understated $320,000 $560,000 $240,000 D. Year 1 Year 2 Year 3 Understated Understated Not affected $320,000 $560,000 ---
Clover Company, a corporation using a periodic inventory system, made undiscovered errors in taking its year-end inventories that overstated year 1 ending inventory by $320,000 and overstated year 2 ending inventory by $240,000. The combined effect of these errors on reported income is: Select one: A. Year 1 Year 2 Year 3 Overstated Understated Understated $320,000 $80,000 $240,000 B. Year 1 Year 2 Year 3 Overstated Overstated Not affected $320,000 $240,000 --- C. Year 1 Year 2 Year 3 Overstated Overstated Understated $320,000 $560,000 $240,000 D. Year 1 Year 2 Year 3 Understated Understated Not affected $320,000 $560,000 ---
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Question
During its first and second years of operations, Clover Company, a corporation using a periodic inventory system, made undiscovered errors in taking its year-end inventories that overstated year 1 ending inventory by $320,000 and overstated year 2 ending inventory by $240,000.
The combined effect of these errors on reported income is:
The combined effect of these errors on reported income is:
Select one:
A.
|
Year 1
|
Year 2
|
Year 3
|
|
Overstated
|
Understated
|
Understated
|
|
$320,000
|
$80,000
|
$240,000
|
B.
|
Year 1
|
Year 2
|
Year 3
|
|
Overstated
|
Overstated
|
Not affected
|
|
$320,000
|
$240,000
|
---
|
C.
|
Year 1
|
Year 2
|
Year 3
|
|
Overstated
|
Overstated
|
Understated
|
|
$320,000
|
$560,000
|
$240,000
|
D.
|
Year 1
|
Year 2
|
Year 3
|
|
Understated
|
Understated
|
Not affected
|
|
$320,000
|
$560,000
|
---
|
Expert Solution
Step 1
Basic Accounting Concept Note for this question:
Overstatement of Ending or Closing Inventory leads to Overstatement of Profit or Income in that Year, and it will also lead to Understatement of Profit or Income for Next Year as the Opening Inventory for next year will get overstated by that amount.
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