Question
28. Regan Company reported net income of $95,000 for Year 1. Early in Year 2, the company discovered that its Year 1 ending inventory was
28. Regan Company reported net income of $95,000 for Year 1. Early in Year 2, the company discovered that its Year 1 ending inventory was overstated by $5,000. Refer to Regan Company. What would be the effects of the inventory errors for Year 1?
a. Assets and shareholders equity will be overstated by $5,000 on the statement of financial position; cost of goods sold and net income will be understated by $5,000 on the statement of earnings.
b. Assets and shareholders equity will be overstated by $5,000 on the statement of financial position, and cost of goods sold will be overstated by $5,000 on the statement of earnings; thus, net income will be understated by $5,000.
c. Assets and shareholders equity will be understated by $5,000 on the statement of financial position, and cost of goods sold will be overstated by $5,000 on the statement of earnings; thus, net income will be understated by $5,000.
d. Assets and shareholders equity will be overstated by $5,000 on the statement of financial position, and cost of goods sold will be understated by $5,000 on the statement of earnings; thus, net income will be overstated by $5,000.
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