Chapter 6, Problem 7QC

At December 31, 2016, Stevenson Company overstated ending inventory by $36,000. How does this error affect cost of goods sold and net income for 2016?

a. Overstates cost of goods sold and understates net income

b. Understates cost of goods sold and overstates net income

c. Leaves both cost of goods so ld and net income correct because the errors cancel each other

d. Overstates both cost of goods sold and net income