#1

If Croder, Inc. underestimates its ending inventory balance in year 1 and it records ending inventory correctly in year 2, which of the following is true?

A) Net Income is understated in year 2

B) Net Income is overstated in year 1

C) Retained Earnings is understated at the end of year 2

D) Costs of goods sold is understated in year 2

#2

Croder, Inc. accounts for bad debts using the allowance method. On September 1, Corder wrote-off a customer's $2,500 account balance. Croder believes the customer will never pay any portion of this balance owed to Croder. What effect will this write-off have on Croder's balance sheet at the time of this write-off.

A) An increase to stockholders equity and a decrease to liabilities

B) A decrease to assets and a decrease to stockholders equity

C) An increase to assets and an increase to stockholders equity

D) no effect