In taking a physical inventory at the end of Year 1, Grant Company forgot to count certain units and understated ending inventory by $16,000. Determine how this error effects each of the following.

(a) Year 1 cost of goods sold.

multiple choice 1

• Overstates Year 1 cost of goods sold.

• Understates Year 1 cost of goods sold.

• None of the above.

(b) Year 1 net income.

multiple choice 2

• Understates Year 1 net income

• Overstates Year 1 net income

• None of the above.

(c) Year 2 cost of goods sold.

multiple choice 3

• Understates Year 2 cost of goods sold.

• Overstates Year 2 cost of goods sold.

• None of the above.

(d) Year 2 net income.

multiple choice 4

• Understates Year 2 net income

• Overstates Year 2 net income

• None of the above.