Question 11

Wilmington Company reported pretax income of $25,000 during 2016 and $30,000 during 2017. After the 2017 financial statements were prepared, it was discovered that the ending inventory for 2016 was understated by $2,000, and was not corrected. Ending inventory in 2017 was correct. Which of the following is one effect of the error?

Pretax income in 2017 was understated.

Pretax income in 2016 was understated.

Beginning inventory in 2017 was overstated.

COGS in 2016 was understated.